LONDON--London Metal Exchange aluminum fell to a one-month low triggered by an increase in LME stocks Thursday, but traders braced themselves for any major fund activity that could trigger further weakness.
At 1330 GMT, three-month aluminum fell to $2,636/ton, down nearly 1% from Wednesday as LME aluminum inventories rose 3,275 metric tons to 755,825 tons Thursday. Earlier, the metal fell to a one-month low of $2,628/ton.
The market hovers below the 200-day moving average of $2,656/ton and system-driven selling will likely be triggered if it moves much below that where a number of sell-stops await, one base metals trader said.
However, so far the price decline has been orderly, said a LME trader. Long liquidation and easing of the spreads has sidelined some market participants but prices would need to break $2,590/ton before it triggers any major downside activity, he added.
Prices fell overnight in Asia due to fund liquidation, according to two London traders, which spread weakness into the rest of the base metals complex.
At 1330 GMT, three-month copper prices fell to $5,340/ton, down roughly 1.5% from Wednesday while three-month zinc fell to $3,110/ton, down nearly 2% from Wednesday.
Moreover, options expiry Wednesday didn't attract the major activity that was expected in the aluminum market and once the $2,850/ton strike price was hit many traders took profits.
In looking forward, Natexis Commodity Markets said recently that LME aluminum will average $2,600/ton in 2007 against $2,567/ton in 2006.
Current prices are being supported by speculative activity, but "sizable deliveries" into LME warehouses show there's "no acute shortage of material, and that prices may trend lower as the year progresses," Natexis said.
The global aluminum market looks set to be in a 100,000-metric ton deficit in 2007 and has lagged the other base metals because it doesn't have their tightness, Natexis added.
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