MI Comment: Forward premium narrows further as prices rise

On the back of positive industrial output readings from Germany, France and Italy this week the euro regained more ground on the dollar, once more boosting dollar-denominated commodity values on Wednesday. Copper and lead traders in particular were buoyed by a bullish consensus emanating from gatherings during LME Week, while aluminium improved after reconfirming chart support c. 2370/80. By the time we signed off yesterday the light metal had picked up from 2415 to 2439, on characteristically low turnover after a 'heavy' night. By the end of the premarket prices had cleared resistance c. 2440/50 and sprinted up to 2470, triggering further short-covering and an afternoon run to highs of 2496. From there activity fizzled out and values eased back to 2466 before the closing bell. The drop in forward premiums continued as outright prices rose, with contangos to end 2009 narrowing by up to $1.00/mth. Backwardations in 2010 also eased by up to $1.00/mth, though in 2011 they tightened by $1.00-$2.00/mth. As such, the keenly-watched 3m-Dec2011 contango narrowed from 43.00c to 24.00c, putting the month's outright valuation at 2490 (2466). The pace of trading was again pedestrian on Thursday morning. From a fleeting low overnight of 2455 values had lifted as far as 2495, though on turnover via Select of only 1,400 lots currently. Dollar weakness was again to blame as the rest of the metals complex gained in unison, though the net fall in LME stocks and further cancellations of aluminium warrants were supportive. Having squared up profitable shorts earlier this week, Cliff Green Consultancy still expected prices to trend 'significantly lower' in the coming weeks, they wrote in a report last night. However, more choppy 'consolidative action' could be experienced before resuming the downward cycle, they added, with a visit to resistance in the 2530 area first not ruled out. Last at 2480.