MI Comment: Aluminium slides as 2007 starts

In our absence since Dec 22, the short-covering aluminium rally that was underway as we signed off continued on to a peak of 2850 last week. Dollar weakness and continued tightness within the nearby spread might have driven prices higher, were it not for LME players' preoccupation with a falling copper market. The first trading day of 2007 was a quiet affair, though yesterday (Wednesday) 3-month volumes across the LME rose significantly, with trade buyers back in the market as metals values were pressured by a rising dollar. With consumption set to slow and production continuing to rise this year, analysts looked for a surplus for 2007, though there was plenty of disparity over its possible size. As fund watchers continued to warn of over-exposure on the short side, aluminium prices fell from 2833 to 2788 on Tuesday, continuing on to a low of 2674 yesterday morning, before the aforementioned consumers stepped in and bid values back up (to 2748.50) in the pm rings.

Early dealings on Thursday morning saw a high in Asia of 2756, though by 9:00am in London the market had bottomed at 2703, with volumes no better than average. Copper appeared to be consolidating the festive season's fall beneath $6000 and while warnings of over-exposure (short) there were even stronger than in the aluminium market, it was talk of rebalancing by commodities index-funds in the coming days that was now worrying locals. Last at 2714.