It wasn’t exactly the most exciting of weeks for LME aluminium traders with the main talking-point (and the source of some considerable mirth on the London “street”) the fact that prices for that least sexy of metals—lead--surpassed those of the light metal at the Tuesday official sessions.
The situation didn’t last long as lead succumbed to profit-takers and aluminium kept trudging sideways in its $2,660-2,760 range—which has defined the price action since the first week of June.
The light metal brushed but never full tested the extremities of that range last week. The low points around the $2,670 level came on Monday and again on Wednesday with the industrial metals succumbing to risk-reduction in other parts of the financial universe—more casualties in the US sub-prime mortgage sector kept the markets on edge about this fast-imploding part of the US economy.
The test of the top end of the range came only on Friday with copper dragging most of the other metals up with it as it responded to a growing list of labour unrest problems and tightening nearby spreads.
LME 3-month aluminium kissed the $2,760 level and a tentative breach of the 30-day moving average just below there triggered a mini-panic by short-position holders on the August date.
However, the technical bears that have been in the driving seat for the last few weeks defended their lines and sent aluminium back down to $2,725 at the Friday close. It was a highly modest week-to-week gain of $28 and one that didn’t fully offset the previous week’s $53 decline.
Technical funds have kept aluminium pinned down for the last couple of weeks and there were suggestions they were aided and abetted last week by a smattering of producer forward selling.
Our fund-watching sources estimate the CTA systematic fund community—the foot-soldiers of this fund army—are collectively short to around 60% of historic capacity. That’s an even more aggressive short position than that in out-of-favour zinc and amounts to a lot of money betting on further price weakness in the coming days.
Contrarian bulls argue that it’s also an accident waiting to happen if the herd gets panicked—Friday’s brush with the 30-day moving average and the rush to cover spreads a taster of what a bigger upside move could herald.
However, it’s not clear right now whether aluminium has the fundamentals to offset this weight of bear fund selling.
Visible stock developments remain decidedly neutral. Total reported stocks fell by around 50,000t in May but still ended the month showing a year-to-date increase of around the same amount.
The latest figures from Japan suggest weakening demand in that country, while there is still no sign of any sustained pick-up in activity in a subdued North American market.
The latest reports out of China suggest that demand there is also weakening as those players churning out product for the export market are reducing activity as the government’s removal of export tax rebates on products kicks in this month.
Alumina prices are falling, the latest tender by Indian producer going for $354, the lowest level since January.
New capacity is coming on line, Argentine producer Aluar saying it has completed the technical expansion of its smelter from 270,000tpy to 400,000tpy with the project now progressing to the ramp-up stage.
There remains a lot of enthusiasm for far-dated aluminium and there is no shortage of bank analysts prepared to talk up its medium-term price prospects.
But for now this market needs a spark to spur it back into life. If it can find one, that massive technical short position on the front months looks very vulnerable to any break of the moving averages sitting above the price action—the 30-day and the 100-day in particular. If it can’t, the bear funds will remain on the attack with the aim of forcing prices to take another leg
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