MI Comment: Aluminium keeps its cool

As far as the LME complex was concerned, Wednesday was mostly about nickel, zinc and lead (yes, lead), where unceasing demand and very short supply in the case of the former saw the market reach the stratospheric $50,000/t level (or $1.89/oz), while the latter broke the $2000 level on mine closure news from Ivernia. No matter, the moves were mostly to do with a fund splurge across exchanges, where equities rallied on strong mining/commodity stocks, which in turn then stimulated commodity prices, and so on. Macroeconomic data were unambiguously bearish, analysts agreed, but the cat was out of the bag and with most metals watchers having been uniformly bearish and short, the result was one-way.

Aluminium was typically the least emotive and most liquid of the LME set and as we signed off yesterday short-covering buyers were meeting producer selling in spades c. 2850, where initial technical resistance had been expected. Volumes were high and as copper pulled lower, so aluminium fell back to 2820. However, the move had a springboard effect as prices then sprung on towards the next level of 2900, topping out at 2882. Weak US ISM figures that would normally have had a marked negative impact on prices did no more than facilitate light profit-taking at the end of the session, with the light metal ending the aftermarket at 2865.

The intraday move left nearby spreads undisturbed, with the linear contango in May-Jun actually easing by $4.00. The ‘dominant' long that had stepped up to 90% in the LME's WC warrant banding report yesterday was this morning back down at 50-80%. Forward rates tightened somewhat further in 2007 and 2008, by $1.50-$2.00/mth, though thereafter rates were left unchanged mostly, weakening by up to $1.50/mth in 2010.

Trading resumed at 2857 on Thursday morning and after picking up to 2868 profit-taking set in, dragging prices to a low of 2830 currently. Technically, resistances c. 2900 and again at 2960 were expected by Cliff Green Consultancy to restrict upward progress, while support now started around 2800, they wrote. Among locals there seemed little appetite for going long(er) over the Easter holiday, with the reality of the US figures and talk of ‘demand erosion' caused by high prices curbing their enthusiasm. Volumes were no better than respectable at time of writing at some 2,600 lots, while 3-months was last changing hands at 2825. We're back on the 16th.