LME open interest shows tussle over aluminium price

* Open interest on LME aluminium jumps to record * Opinion on aluminium prices split * Options also show opinion differences By Rebekah Curtis and Pratima Desai LONDON, June 2 (Reuters) - A jump in the number of open positions on aluminium contracts traded on the London Metal Exchange suggests a tussle between bearish short term investors and longer term bulls. Recent weeks have seen economic data from major economies suggesting the world economy may have reached a floor, but some short term investors such as hedge funds and bank traders are sceptical about an imminent recovery. Open interest -- the number of outstanding positions on aluminium contracts on the LME -- has jumped to a record 806,504 lots or more than 20 million tonnes, up 17 percent from 682,100 lots or 17 million tonnes in the middle of March. "The surge in open interest ... suggests there's a tussle going on between speculators who are shorting it and longer term investors who have been happy to buy on dips," said David Thurtell, an analyst at Citigroup." The market is also talking about consumers buying aluminium for delivery in the future when prices slip. Rising open interest combined with falling prices normally suggests rising short positions -- bets on lower prices. Price gains at the same time as rising open interest is typically taken to mean a build up of long positions. But things are not so clear cut this time, analysts say. Differences of opinion can also be seen in options traded on the LME. Call options give holders the right to buy the underlying futures at a fixed price in the future, while put options give holders the right to sell the underlying contract. The number of outstanding put options between strike prices $1,400 and $1,600, the price range in recent weeks, stand at around 12,400 lots or 309,400 tonnes, while the number of calls totals 9,700 or 242,000 tonnes. Traders say the closeness of the two numbers indicate a marked lack of consensus on the future direction of aluminium prices. LITTLE POTENTIAL LME aluminium prices have tumbled about 10 percent since early May to around $1,470 a tonne. The metal used in transport and packaging has been battered by recession and the serious difficulties facing companies in the auto sector. The drop accelerated after May 18-20, when aluminium inventories in LME warehouses jumped nearly 240,000 tonnes over the three days. LME stocks at above 4.2 million tonnes have hit record highs almost on a daily basis since January. "Until stocks start to show substantial falls, there is very little potential for aluminium prices to make significant gains," a London-based trader said. "But there are people who think aluminium is underpriced." China is the world's largest producer and consumer of aluminium. Its decision to give tax rebates on aluminium products are likely to encourage local smelters to restart production, meaning the market could see a bigger surplus. But aluminium production is energy intensive and higher power prices because of improved economic activity could hit producer profits in China and possibly prompt shutdowns, analysts said. Also a plus is the possibility of a solution to the problems in the auto sector, where General Motors on Monday filed for bankruptcy protection as the U.S. administration took steps to try to revive the company with extra funds. [ID:nN01398575] "With the problems in the world auto sector gradually being worked through, one suspects that aluminium demand can continue to recover, and with it the price," Thurtell added.