London 3-month aluminium muscled its way higher again in the closing stages of last week to close above the $2,800 level for the first time since May. The big banks may be taking the red ink to their projections for next year and the chorus of voices predicting a shift back from deficit to surplus in 2007 but this market seems intent on keeping its December appointment with the $3,000 level.
Momentum
December is where the big open interest lies, both on futures and options, the latter acting as a magnet above the market as those who sold the call options are forced to seek a bit more delta-hedge cover with every leg higher.
Providing the upwards oomph is a combination of short-covering from the systematic fund community, fresh opportunistic investment buying and industry pricers. Standing in their way are bands of producer selling but the latter so far at least has not been able to stop what seems an almost inexorable underlying upwards momentum.
The first part of last week the game hit a brief stalemate with 3-month metal failing to get a strong foot-hold above the $2,700 level amid a general drift across the whole LME complex. Static gold prices, easier oil prices and the pending US interest rate announcement on Thursday combined to suck enthusiasm out of London trading with a tendency to drift only halted by flickerings of bargain-hunting at the lows and a brief Monday burst of institutional investment buying across all the commodities.
It was only on Wednesday when zinc—the new bull baton holder—started motoring on the upside that aluminium's pent-up structural dynamics came back into focus. The market broke away from the $2,700 level and picked up renewed momentum as it moved through last week's highs around the $2,760 level, a breach of a minor Fibonacci level throwing fuel on the systematic trading community’s fires.
The close at $2,764 set things up for an assault on the next band of expected producer selling at $2,800, which was being reinforced by an influential fund player, according to the scuttle on the London "street".
In keeping with the two-steps-forward-one-step-back nature of the light metal's recent advance, that combination kept the rally in check on Thursday but the addition of Chinese buyers on Friday—reacting to the announced hike in the export tax for aluminium and the simultaneous reduction in the alumina import tax—took out the sellers and aluminium closed the week out at $2,808, a week-to-week gain of $90 and the sixth consecutive weekly gain, which is hard evidence of that underlying upwards momentum.
Every leg higher brings with it another round of short-covering, which leads to a further tightening of the spreads around that December date. The full cash-3s period ended the week valued at $10.50 backwardation with the front part up to the December date in contango and the second part from the December date onwards in backwardation.
Split Personality
As we've said before there is no change to this market's outlook for next year. Last week saw Norwegian producer Hydro join the list of those publicly saying they expect aluminium to move to marginal surplus next year, while this morning brought more of the same from Japan's Marubeni (see Platts item below).
The likes of Goldman Sachs have been running the ruler over their consumption figures for next year in light of the expected slowdown in global economic growth, while others are fretting about the signs of renewed acceleration in Chinese production growth.
A bullish cocktail it is not but aluminium looks once again as if it is going to power its way to the point of maximum exposure, which remains the $3,000 level.
The CTA systematic fund community are steadily being stopped out of their short positions and have now reduced their collective short exposure to around 10% of potential capacity with others now coming in on the long side attracted by the light metal's technical progress.
And while w
豫公网安备41010502003434号