MI Comment: Producers fail to quell renewed enthusiasm

After starting Friday unchanged c. 2760 and flatlining for a number of hours, aluminium prices had taken off mid-premarket, muscling their way through 2800 before we went to press. The speculative buying spree lifted values to the day's high of 2827 shortly afterwards during the first ring, at which point Chinese buyers appeared to retire for the night. While zinc and lead were stronger early on, along with oil and gold and with the dollar softer, it was news of a fresh tax structure for alumina imports/primary metal exports that triggered the surge. Volumes stood at a healthy 3,400 lots for the premarket as fresh buyers and distressed shorts took on sizeable producer selling. As the day wore on prices drifted off to 2805, though they never threatened to fall back below 2800.

Nearby spreads were firmer from December onwards -- as one might have expected given systematics' short-covering -- though nearer Cash contangos also contracted, with C-Nov15 ending at 0.57 per day (0.66/day). Anecdotally, forward rates were bid well over closing evaluations as producers looked to lock in sales basis $2800+ in the premarket; at the end of the day 2007 ended easier by up to $2.00/mth, while 2008 tightened by no more than $1.00/mth.

On Monday morning aluminium and zinc remained the LME's standard bearers, making new highs as speculators continued to flock to them, leaving copper and others behind. Locals reported continued Chinese buying and systematic (CTA) short-covering, while producers provided sell-side supply with rates beyond 3-months again said to be much better-bid. LME Select had jumped on the opening in Asia after prices had been marked higher in opaque 'overnight' dealing, registering its first transaction at 2820. Ahead of the London opening the market had notched a high of 2835, though from there values had slipped somewhat at time of writing, to a current low of 2812. Volumes stood at a respectable 2,100 lots. While the ramifications of China's new tax treatment remained subject of debate, technically the market had made its sustained break above 2760 and was now capable of heading towards the 2880 and 'even' the 2950 areas, suggested Cliff Green Consultancy. With an overbought reading on the 14-day RSI of 71, the trading strategists now looked to place fresh buy orders below current levels, aiming to capitalise on any dip to 2770 and below, they added.