MI Comment: Volumes rocket as aluminium falls

We signed off on Friday during a quiet premarket, with metals dealers awaiting US employment data before deciding which way to jump in the afternoon. As it turned out, aluminium traders took the initiative ahead of the US non-farm payroll release, selling the market on the back of the sliding S&P 500 index. Having spent the morning sessions dithering around support at 2710/20 prices fell acutely as the US got going, falling rapidly to the next support level c. 2660 and beyond. The jobless data could have been worse, locals commented, though the biggest monthly drop in almost two years of the US ISM index of non-manufacturing services set alarm bells ringing. The market twice bottomed at 2640 as fund managers exited longs, though with the light metal at 9-month lows in euro terms, regional consumer buying saw prices recover to 2675 in the aftermarket. Nearby contangos edged a little wider with Oct(17th)-3m easing from US¢59/d to US¢72/d, while heavy lending in the forward structure remained a strong feature of the market. H2 2008 fell by up to $4.00/mth, H2 2009 by up to $5.00/mth and 2010/11 both lost $3.50/mth throughout. The ‘tidal wave of lending’ as one perplexed local labelled it looked set to continue, with far out buying interest still coming from index funds. In the meantime hedges were being lifted in 2008, with producers and consumers increasingly moving towards fixed price contracts, reports had it. The LME’s WC warrant banding report was clear in this morning’s update. On Monday morning trading resumed in Asia at 2678, which was also the high so far, with prices sinking back to a low of 2636, on extremely high turnover. At time of writing before the end of the premarket, LME Select had already clocked up 6,000 lots of outright turnover in addition to the large tonnages that change hands in broker dealing rooms without touching the system. With (dollar) prices at 6-month lows trade buyers continued to mop up, though technically prospects were deteriorating, according to Cliff Green Consultancy. The trading strategists now anticipated tests of 2610/20 initially and ‘even’ 2540/50, while bounces towards resistance at 2710/20 then 2775 would be taken as an opportunity to ‘probe the short side’, they wrote. As we signed off values had just recovered to 2660.