LIVE FUTURES REPORT 21/06: LME nickel price weakens in lackluster trading; zinc spread sub-$100/t

Nickel’s three-month price on the London Metal Exchange edged lower during morning trading on Friday June 21, pressured by a continued draw on the exchange’s dwindling supply.

Some 2,778 tonnes of full-plate nickel cathodes were freshly booked out of LME-registered warehouses this morning, prompting the downturn in price movement.

The metal’s futures price was still trading above the nearby $12,000-per-tonne support level however, while volumes traded were moderate with around 3,300 lots exchanged as at 9am London time.

The stock move in nickel could reflect an absence of full-plate cathodes in Asia, while participants have confirmed to Fastmarkets that Asian merchants are now ramping up nickel briquette business due to arbitrage opportunities emerging with the Wuxi Stainless Steel Exchange.

Yet the LME’s nickel inventory continues to fall amid continued outflows and fresh cancellations, with on-warrant material now around 107,000 tonnes and total stocks keeping near a seven-year low of 168,684 tonnes.

“With the LME speculative short position looking a little overcrowded at 39,741 lots, it can be vulnerable to potential bouts of short-covering exercises,” Fastmarkets analyst Andy Farida said.

“Nickel’s net short fund position rose to a new record high of 17,265 lots in the week to June 7 driven by gross shorts’ selling of 5,778 lots, which was reinforced with another week of stale-long liquidation, with 1,173 lots cut from the gross longs’ exposure. As such, we envisage short-covering activity to emerge,” he added.

Meanwhile, zinc’s three-month price on the LME was also lower over the morning session, slipping below the nearby $2,500-per-tonne support level.

Pressuring spot business, zinc’s spreads have continued to trade in wide backwardations since April, reaching their steepest level since 2006 at a cash/three-month spread backwardation of $161 per tonne in early May.

That said, zinc’s cash/three-month spread is now beginning to ease, recently trading at $90 per tonne, while nearby cash-July spreads were recently seen in a $42 per tonne backwardation.

Other highlights

  • The US dollar index was down by 0.02% at 96.62.
  • In US data on Thursday, the Philadelphia Fed manufacturing survey showed lost momentum in US manufacturing, falling to 0.3 in June from 16.6 in May. In contrast, unemployment claims showed a steady labor market with initial claims of 216,000 for the week ended June 15, a decrease of 6,000 claims from the prior week.
  • In European data on Thursday, the UK’s retail sales for the May-June period were in line with expectations with a month-on-month decline of 0.5%. The Bank of England, as expected, kept its official bank rate unchanged at 0.75%.
  • In European data this morning, France’s flash services purchasing managers’ index (PMI) figures for the May-June period improved to 53.1, remaining in expansion territory. Similarly, French flash manufacturing PMI over the same period improved with a reading of 52.
  • Elsewhere, Germany’s flash services PMI also improved over May-June at a reading of 55.6, and despite flash manufacturing PMI also ticking higher over that period to 45.4, the latter remains in contractionary territory.
  • The EU’s flash manufacturing PMI was lower over May-June at 47.8, while its flash services PMI improved to 53.4.
  • Later, manufacturing and services PMI data is due from the United States, in addition to existing home sales figures.