MI Comment: Forward contango folds as 3-months bounces

The currency markets again drove aluminium prices on Tuesday, moving higher within the recent range after stronger-than-expected German industrial production figures boosted the euro/dollar. News of power rationing in southern Africa bolstered technical support c. 2370/80 and in relatively patchy trading prices picked up from the mornings low at 2380 to peak at 2437 after the kerb close. Liquidity was on the low side with many traders out cocktailing or at meetings for LME Week, while those at their workstations struggled with Select, which was on the blink. Perhaps more interesting than 3-month moves was a shift in the forward structure, with the contango to end 2009 narrowing incrementally, while the backwardation in 2010 tightened by $2.00-$2.50/mth. 2011 and 2012 gained $0.50/mth on evaluation, with Dec 2011 outright rated at 2466, down from 2480 (or 43.00c, in from 93.00c!). Late on Tuesday copper traders had taken news of an end to strike action in Peru in their stride and on Wednesday morning they instead drew strength from an ongoing dispute in Mexico and from bullish producer talk by Codelco. As such, the red metal had dragged aluminium somewhat higher at time of writing, from 2415 overnight to highs of 2439 currently. Dealers’ enthusiasm was rather curbed by market rumours of an exchange warranting of 100,000t in the coming days, if not by their hangovers… In their latest daily report as at last night Cliff Green Consultancy expected recent resistance levels c. 2440/50 to be tested again after once more confirming support at 2370/80. As such, the trading strategists had taken profits on shorts, they wrote, looking to reinstate them on a possible move towards the 2530 area (rpt. 2530) in the days ahead. Last at 2435 on very light electronic turnover of 1,150 lots.