MI Comment: MoUs in the driving seat as aluminium takes a hit

Investment funds, hedge or otherwise, have a lot to answer for these days. Looking for an excuse, any excuse, to sell metals they had recently created the notion that China was awash with copper after strong March import figures had caught them out. Then nickel suddenly saw a (temporary?) jump in LME inventory and China’s newly announced export tax measures weren’t very supportive for zinc prices.

In this climate, news on Thursday that two copper producers were in labour talks, that Voisey’s Bay nickel operation was closed and that BHP Billiton’s three African aluminium smelters were suffering power problems were easily disregarded. Compounding these price-positive factors was another strong business confidence reading from Germany and a strong set of macro data from the US too. It seemed not to matter, as the Masters of the Universe simply had their selling boots on.

Aluminium had come off in the preceding sessions from the top of its broad range (c. 2900) and spent the premarket and morning sessions languishing at the lower end, trading quietly around 2810-2830. Other markets were in the same boat, though in the afternoon a wave of selling appeared to hit a buyers’ vacuum and prices dumped in the pm sessions, clocking a low of 2750 just after the kerb close. The whole base complex, except tin, suffered a similar fate, with gold and oil also sinking, in turn dragging down resources equities, which in turn pulled indices lower, and……you get the picture.

Despite a long weekend rolling out of the C-3m period the overall spread eased by $2.00, though the Jun20-27 $1.00-backwardation remained. Gone meanwhile was the second ‘dominant’ long in the LME’s WC warrant banding report, which this morning was back to one steadfast holder of an equivalent of 30-40% of all open stocks. Forwards eased by up to $2.00/mth up to end-2009.

Thursday’s aftermarket had seen values recover to 2770 and on Friday morning they edged higher to 2782 before being sold off again with the 100-day moving average there providing resistance. The market had so far hit a low of 2745, though it was hardly one-way traffic with volumes via Select at a strong 6,000 lots, on top of the large tonnages crossed in dealing rooms. From there prices had bounced to 2780 currently with the rest of the LME complex also finding buyers at lower levels.

Following the break below 2790, Cliff Green Consultancy suggested that short term trends were turning down and ‘local’ support c. 2720 and ‘even’ 2660 could come under examination, they wrote. A clear and sustained break above 2860 was now required to relieve the pressure and set up a new test of recent highs, they said.