MI Comment: Stirrings in the undergrowth give aluminium a leg-up

We signed off Thursday's aluminium Comment with the words "… any major move looked unlikely ahead of the month/quarter end tomorrow", which turned out to be incorrect, naturally. The move back up towards 2800 and above a trio of moving averages yesterday was hardly explosive, though with oil still flying on Iranian tensions, more demand-positive stories in the copper market and the usual month/quarter-end window dressing, prices posted a $40 gain at the end of the day. In the mean time, in the undergrowth, an offensive was underway in the aluminium options market, locals whispered. They had noted this week the build of a 20,000-lot min/max position for June 2007, which had crushed nearby volatilities and eased those further out. Some made the connection between this move and some bullish producer comments recently, though we couldn't possibly comment, of course…

The surge in outright prices brought short-covering as speculators had been short, looking for a fall through local support c. 2710. Nearby spreads tightened up somewhat, though there was as yet no sign of any backwardation within the C-3m period. Forward rates also appreciated, gaining up to $1.00/mth to the end of 2010, up to $2.00/mth in 2008. In the latest WC warrant banding report one party remained, in the 50-80% bracket.

On Friday morning the steady close and a 7,600t stocks drop in Shanghai give prices another fillip, trading to a high so far of 2805.50 after reopening at 2783. Volumes had also improved markedly, albeit from a very low base, reaching 2,500 lots at the end of the premarket. Initial resistance started c. 2840, according to Cliff Green Consultancy, with a clear break above here setting up moves towards the upper boundary of the market's broad range at 2900.