MI Comment: Aluminium gallops higher on China tax measures

As we went to press Thursday aluminium had opened unchanged in Asia at 2770 and lifted to 2793, though without sufficient buy-side volume to challenge 2800, the market had slipped back to 2770 when we signed off. Nickel took a pasting, copper dithered, as it had done in preceding sessions, and while zinc edged a little higher the light metal seemed stuck, albeit at a high level. Locals reported early Chinese buying and took heart from price-positive stocks data from the IAI, though fund watchers were surprised and disappointed at the low volume of fresh CTA buying after the break above 2760. Word around the market that an influential speculator had placed a large selling order just beneath 2800 appeared to put a cap on things throughout the day. Over the morning prices drifted to 2760, blipped back to 2780 and tailed off over the afternoon to a low of 2745 before perking up at the close. US housing and durable goods data were somewhat better than expected, though no great shakes.

Overall, C-3m eased in the first half and tightened in the second, while forwards tightened by up to $3.50/mth in 2007. After that movement was mixed and rates moved typically by $0.50-$1.00/mth.

Friday morning began unchanged at 2765, whereabouts prices sat until London got going. Early indications were that a sell-off might be on the way as the market was offered down as far as 2745, though word came through of new Chinese tax measures for imports of alumina and exports of aluminium. Coupled with modest falls in SHFE and LME inventory this appeared to trigger a wave of (Chinese) speculative buying and by time of writing, prices had soared from 2760 to 2815 currently! Volumes stood at a healthy 3,395 lots with the rise attracting strong forward selling interest, where backwardations were bid well over evaluation. While the trading strategists themselves were sidelined awaiting a corrective pullback before putting on longs, Cliff Green Consultancy in a report last night suggested that a sustained hold above 2760 could trigger moves towards 2880, with 'even' a challenge of the 3000 area becoming readable.