MI Comment: Aluminium gains on short-covering, or does it?

Aluminium's steady climb on Thursday was interrupted only by a poor set of US jobless claims data. By the time we signed off the market had opened at 2505 and reached 2530 in moderate turnover, later moving ahead to 2545 over the morning sessions. Activity elsewhere was mixed up to that point, subdued by another round of stocks landings across the board. Then, as the US jobs news was released the whole complex -- apart from lead -- took a knock. Copper suffered worst, while aluminium was dragged back to 2505 over lunch, though the light metal recovered fully and peaked at 2558 while copper languished. Locals took this as confirmation of the theory that aluminium had been used lately by fund managers as a short hedge against copper longs. Nearby contangos narrowed fractionally throughout C-3m with shorts being covered. Movement beyond there was more pronounced, with contangos within 2008 more than halved in places, while backwardations flared wider up to mid-2010. H2 2010 actually eased marginally, though the keenly watched Dec 2011 date ended up at 95.00b (20.00b), or at 2456 outright, well down from 2490! On Friday morning copper was holding up in spite of stock increases on both SHFE and LME, while aluminium crept higher from 2542 to 2562 on turnover of 1,900 lots (only). Had the forward curve been bid wider to deter producer selling yesterday? Were copper stocks being flooded artificially in order to create a fresh buying opportunity by one of that market's dominant players? With oil, precious and softs all climbing, why were base metals lagging? These were the questions being posed by observers trying to make sense of it all. Unswayed by aluminium's (upward) 3-month moves this week was Cliff Green Consultancy, which continued to see the overall technical outlook as 'deteriorating'. In the short term the break above 2540 signalled a move towards the next level c. 2580/90, with a break above that bringing stronger resistance c. 2670 into sight, they said. Until then, the FSA-authorised trading strategists remained lurking sellers, the daily report concluded.