MI Comment: Aluminium succumbs to ‘subprime infection’

As we signed off on Thursday the base metals complex was again feeling the effects of a general lack of confidence in the markets, with the US subprime mortgage saga continuing to cast gloom. While the likes of copper and nickel fell more acutely, aluminium was swept lower from 2666 to 2620 before we went to press, with trade buying and short-covering preventing a collapse. As the others slid deeper the light metal did come off further, bottoming at 2596 briefly over lunch, though the huge speculative short built up in recent weeks was now providing support. Locals were now fearful of a corrective spike, one commentator observed. Further easing in close-by forwards now put the whole of 2008 into contango, while the backwardation in 2009 slackened by $0.50/mth. Beyond there rates tightened by $0.50-$1.00/mth throughout. Like the ‘foot and mouth’ disease doing the rounds in the UK farming community, the subprime ‘virus’ continued to spread around the financial community on Friday. Central banks were injecting fresh liquidity into the money markets to avert a global credit crunch, though confidence remained badly shaken. Aluminium had spent most of the premarket just either side of 2600, though as we went to press prices dived in the first ring session to lows of 2570. Volumes were high again with LME Select having clicked some 5,000 lots currently. Stock falls on the SHFE and here in London seemed immaterial, with interconnected markets dragging each other down in a vicious circle. In their latest daily report last night Cliff Green Consultancy continued to see immediate weakness as a component of the long-established trading range, with a test of the 2540/50 area now ‘likely’. A market close beneath 2540 signalled objectives around 2500, they concluded. Last at 2587.