It was largely a week of “no change” for LME aluminium. The mass attack of the CTA technical fund army remains in full force across the front part of the curve. Macro fund buying at the back end of the curve is keeping far-dated prices propped up with the flattening of the curve we highlighted last week still very much in view.
LME 3-month aluminium made its only real sortie higher on Monday, helped by copper's (brief) strength and a positive alignment of external currency factors. The result was an early-week high of $2,760, from which the market was slam-dunked back down to $2,705 at the Monday close.
It never really recovered over the rest of the week with the UK rites of summer—Royal Ascot last week, Wimbledon this week—bringing with them the onset of summery trading conditions on the LME.
The 3-month price made a half-hearted attempt to move higher on Wednesday but never made it further than $2,740 and by Friday's close at $2,697 it was struggling to keep a foot-hold at the bottom end of its recent range.
The CTA “black box community” has got its knives out for the light metal and although it didn't lift its net short exposure much last week, at an estimated 57% of historic capacity that short position remains huge.
The CTAs trade only the charts and their own technical signals but it seems no coincidence that they are flexing their muscles just as we enter the seasonally slowdown summer period.
Global production is rising. Chinese production has never stopped rising in the last couple of years, although the most recent figures from the China Nonferrous Metals Industry Association do at least suggest it is now starting to top out at around the 12-million tonnes annualised level.
However, production in the rest of the world is now starting to accelerate with last year's anaemic growth rate of 1.7% picking up to 2.7% in the first five months of this year, according to the International Aluminium Institute. It is expected to continue rising thanks to restarts in Europe and the US as well as new capacity in Iceland and in Russia in particular.
Physical premiums generally remain in the doldrums, as evidenced by the third successive decline in quarterly premiums for deliveries to Japan. Q3 premiums have settled at $68-69 per tonne, compared with the recent peak in Q4 06 of $82-83. Business in the US remains lacklustre with no indication yet coming from the new orders figures of any imminent pick-up.
Premiums in Europe remain steady, albeit still somewhat confused as players disentangle the drop in the duty level from existing deals. Only one contrarian strand in the global premium structure is evident—that for non-ingot forms of Chinese metal in South Korea.
That reflects expectations—confirmed last week—that China's authorities are going to try and stamp on the soaring trade in exporting such metal.
The latest trade report for May showed the continuing divergence between falling exports of primary metal and still rising exports of "product" as local players leverage the differential tax treatment between the two.
China said last week it will eliminate export tax rebates on just about all aluminium product with the exception of strip and foil (after much lobbying by local producers of those products) from the start of next month.
The move has been warmly greeted around the market that Beijing is serious about trying to curb exports of aluminium—in whatever form. However, it didn't take long for a second-take, cooler reaction to kick in. As we ourselves noted, events in the primary metal market do not suggest that Beijing has done enough to turn off the tap. The removal of rebates from exports of primary aluminium created only a blip in the country's once-huge exports. It took two increases in the export tax—now at 15%--before primary metal exports slowed significantly and it remains to be seen whether more will now be needed to curb the
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