LME Base Metals:Commitment of Traders Report for w/e 26Aug 2016

Turning decidedly bearish on copper.

    It was a case of pausing for breath over the past week, with little change in netpositioning for most of the base metal complex. There were small decreases innet long positions except for zinc which saw a modest increase in net longs.

    The main exception was copper with a sharp increase in short positionsalongside a liquidation in longs. The money manager net longs as a percentageof open interest fell 3% whilst prices fell 4%. Our preference remains zinc andnickel over copper and aluminium.

    Zinc: The net long position continues to increase.

    Zinc remains one of the most preferred base metals tied with nickel. Openinterest (411K) increased by c.2%, while a decent increase in new longpositions resulted in net long position increasing by 1.2K contracts over theweek. Zinc prices are currently above USD2,300/t, up by 46% YTD and tradingat a ratio of 1.23x versus lead. Chinese domestic prices are up 37%, tradingabove RMB18,000/t, a level which we think will entice restarts.

    Nickel: Reacting to the Fed.

    Nickel just managed to hold onto the most preferred status amongst moneymanagers despite net long positions decreasing by 647 contracts over thereporting week. However, the net money manager positions as a percentage ofopen interest was flat at c.19.1%, due to decrease in OI over the week. Recenthawkish commentary by US Fed, has seen an increase in a probably of ratehike in September and accordingly the USD has appreciated. Nickel tends tobe the most sensitive metal to the USD and prices fell 5% over the reportingweek.

    Copper: Turning bearish once more.

    Copper continues to be the least preferred metal amongst the moneymanagers as significant new short positions were added in conjunction withmodest long liquidation over the reporting week. Net long positions by moneymanagers decreased by 12.7K contracts, with net longs as a percentage ofopen interest also falling (to 5.8%, pre Brexit levels). Copper LME inventory hasincreased by c.130kt since the beginning of June as Chinese exports to AsianLME warehouses have increased. The reallocation of stocks was particularlyprevalent over the past week and prices decreased 4% over the week (down2% YTD).

    Aluminium: Risk off.

    Aluminium saw a second consecutive week of decreasing open positions(923k, down 1.6% w-o-w). There was some directional uncertainty over thepast week, as there was significant short covering along with an offsettinglong liquidation. Net money manager positions as a percentage of openinterest increased to c.16.3%, up 0.2% from last week and are at a new recordlevel. Chinese inventory (103kt) continues to shrink and is down 66% YTD dueto demand out-stripping supply.