Aluminium hits highest in nearly two months

Aluminium touched its highest level in nearly two months on Monday as consumer buying boosted the market in thin conditions.

Three-month aluminium on the London Metal Exchange (LME) climbed to a session peak of $1,839 a tonne, the strongest since Nov. 4, before paring gains.

It closed at $1,822, up 0.7 percent. "I think there was some consumer buying," said Gianclaudio Torlizzi, partner at T-Commodity, saying low liquidity during the holiday period exaggerated the gains.

Aluminium also broke above its 100-day moving average, a bullish sign for investors who watch signals based on chart patterns.

It remained on track for a 12 percent loss this year, however.

"I see the metals as vulnerable to selling when traders come back to work. Every spike is a good selling opportunity in my view," Torlizzi said.

Another analyst, Nicholas Snowdon at Barclays, has said the supply-demand fundamentals in aluminium were changing after years of oversupply and surpluses.

"We believe the market is now turning a corner, with the aluminium market ex-(excluding) China having fallen into deficit in 2013 and that deficit set to get bigger in 2014," he said in a note this month.

Copper was barely changed, trading around its highest since mid-August. Benchmark copper closed 0.03 percent up at $7,380 a tonne. It jumped to $7,415 a tonne on Friday, its highest since Aug. 16.

The metal gained about seven percent in the last six weeks on signs of a more solid global economy but prospects for improvement in physical demand remain uncertain.

PRO AND CONS

Copper also garnered support from a lack of readily available refined metal due to falling exchange stocks.

LME data on Monday showed copper stocks in exchange-registered warehouses extended their recent decline, dropping to 367,450 tonnes, the lowest since January.

Still, the red metal is down about 7 percent on the year and ample copper concentrate seen flowing into the market next year will eventually feed into more stocks of refined copper, swelling supply and overhanging prices.

The large supply situation was reinforced on Monday when top copper producer Chile said output rose 7.6 percent in November.

Another headwind for metals prices will be US central bank policy. Citing an improving labour market, the Federal Reserve said earlier this month that it would reduce its commodity-friendly stimulus program, starting in January.

Many in the market expect a further reduction in the program soon and a rise in interest rates which could impact the housing and automotive markets, both big consumers of metals.

"Take the dual situation of China growth slowing and the US rates going up and you can make a case that we are not going to have a runaway boom market in 2014 especially since many of these metals are in surplus," said INTL FC Stone analyst Ed Meir.

"I think once the surpluses have worked themselves out we could see a nice move higher at the end of 2014 going into 2015 because that is when you'll get some much needed cutbacks especially in metals production."

Zinc closed 0.2 percent down at $2,086 a tonne while lead lost 1.4 percent to finish at $2,255. Tin fell 1 percent to close at $22,600 and nickel closed down 0.5 percent at $14,125.