MI Comment: Aluminium tests shorts' patience

It was more of the same on Monday, with commodities generally underpinned by dollar weakness though at the same time restrained by fears over the health of the world's key economies and markets. The IMF warned of “protracted turmoil” in global credit markets, while Eurozone industrial orders slipped by more than expected in June. Copper spent most of the day consolidating around the $8000 mark, though aluminium struggled in the face of rising stocks and increased production just about everywhere. Having dipped initially to lows of 2396 prices perked up to 2428 in the am sessions, only to be sold off aggressively to 2377 in an attempt to break support c. 2370. Locals theorised that aluminium may now be being used by some speculators as a short hedge against the other metals. However, having matched last week's lows the market bounced and recovered as far as 2420 in the aftermarket. The nearby contango lengthened significantly as the Christmas holiday rolled into the C-3m period (doesn't time fly?), while forward rates were steady with outright buyers bidding 2440 for Dec 2011 at the close. Confirmation of a Peruvian copper strike overnight (Mon/Tue) bolstered the red metal above $8000 on Tuesday morning and equities and precious metals were easier after yesterday's gains. Aluminium in the meantime continued to confound the shorts, struggling initially around 2415/25 before surging suddenly to 2450 as we went to press. Electronic volumes were ticking up too, reaching 2,450 lots currently, with buy-side enquiries coming from the macro-fund sector, dealers reported. Last at 2453.