LME open interest: Copper open interest drops sharply in 1H11 ::Macquarie Research,

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LME open interest: Copper open
interest drops sharply in 1H11
Feature article
 We review the latest developments in LME open interest and base metals
prices. Since the beginning of the year both short and long positions have
been taken off in copper with open interest falling sharply back to mid-2010
levels and prices edging lower from ~$10,000/t to ~$9,000/t over the period.
Meanwhile, nickel and aluminium price declines over the past two months
have been in association with falling open interest and thus long liquidation
appears to have accounted for the move lower.
Latest news
 Most LME base metals prices rose in quiet trading on Tuesday, with copper
closing up 1.1% on the day and nickel notching up a gain of 2.2%, reportedly
on the back of short covering.  PGM prices also rose, but gold and silver
closed almost unchanged on the day at just below $1,500/t.oz and $34/t.oz,
respectively.
 The China Iron & Steel Association has reported crude steel production
running at an average daily rate of 1.955mt (714mt on an annualised basis)
over the ten days 11-20 June.  This marks a fall of 0.6% from the preceding
ten-day period.  We have been expecting China's crude steel output will dip
for seasonal reasons over the next two-to-three months, but we think that the
market remains cyclically stronger than suggested by current sentiment in
investment markets.
 Japanese aluminium shipments rose 1.9% MoM and 0.8% YoY to 166,885t in
May, despite a drop in flat-rolled product shipments due to the drop in auto
output following the earthquake and tsunami in March.  This is marks the first
year-on-year rise in shipments since Q1 2011.
 Indonesia's PT Bumi has said that it expects to commission its Dairi Prima
zinc-lead mine project in Sumatra in early 2013.  Target production at full
output is ~120,000tpa zinc contained and ~60,000tpa lead contained in
concentrate.
 The flooding in some regions in China appears set to have only a limited
impact on copper demand.  Our concerns about the endangered copper
semis production by flooding Zhejiang in the past two weeks, which accounts
for 20% of the total, have been alleviated by the confirmed negligible impact
from our industry sources. Flooding is overwhelming in rural areas, while
larger copper semis producers are located in urban territory/outskirts, which
helps to shield the risk.
 We are, however, hearing that power rationing has resulted in lower than
optimal copper semi’s output (first-use copper consumption) in late May and
June (in Zhejiang and Anhui). This is temporarily reducing consumption of
refined copper and scrap and may continue into the summer; however,
because end-use consumption is set to remain strong in 2H11, copper semis’
output will need to bounce back post rationing to satiate end user demand.