Copper rally takes aluminium higher

Strong Chinese economic data, and a more relaxed attitude towards the extent and spread of the Dubai World saga, have combined with a weaker dollar to see much of the base metals complex rally strongly this morning. Equity markets are also much stronger, with concerns over Dubai World, the German banking system and the state of the UK economy being pushed to one side. Aluminium has led the base metals complex higher, with the light metal reaching just shy of $2,100 before drifting back slightly heading into the afternoon. The move has come on the back of decent turnover, with fresh buying interest also emerging. After a pretty anemic start, copper is once again trading above the $7,000 level heading into the afternoon, with an outbreak of what looks like fat fingeritis, earlier this morning, appearing to have no lasting impact. The initial trigger for copper’s rally actually appears to have been aluminium’s move higher, with combination of a stronger dollar and increased risk appetite subsequently helping to support prices. Available LME inventory posted yet another gain, with on-warrant stocks in South Korea gaining 2,600 mt, however, the figures continue to have little impact on sentiment. In contrast to copper, nickel has struggled this morning, with a 3,564 mt increase in on-warrant LME stocks helping to snuff out this morning’s initial rally. The main location for the inventory was Rotterdam, up 1,764 mt, however Singapore and South Korea also saw significant increases, up 870 mt and 930 mt respectively. Looking ahead, the month of December looks like being a very volatile period indeed, with factors such as year-end profit taking (on both commodities and currencies), commodity index re-weighting activity, concerns over Chinese spending levels next year, and the afore mentioned concerns about elements of the wider economy all converging. Set against this admittedly rather bearish short term outlook, are the longer term concerns over inflation, the strength of the dollar, but also the expected global economic recovery. We therefore do not rule out an aggressive sell-off, particularly if any price weakness triggers significant CTA activity, however, given the strength of the rebound in commodity prices in the aftermath of the Dubai World story late last week it appears that any price dips will also continue to be seen as a longer-term buying opportunity.