Aluminium prices rocket higher from oversold levels

Aluminium was quick to correct lower after stalling at $1,605 early in March, dropping to $1,475. The sell-off attracted buying that led to a rebound to $1,548. Prices then consolidated but have since pushed higher again; the push has turned to a sprint, with prices gaining more than $100 in four days. While prices look overbought in the short term, having been underwater for so long and having put in a solid base that has been tested on various occasions, the rally may well have further to run, analysts suggest. Next resistance is likely to be encountered around $1,646 and $1,655, they opined.

Macro factors

According to the industry experts, the build-up in cancelled warrants is the main feature of the market – slowly but surely, available LME stocks have shrunk while metal has flowed out at a steady pace and warrants are being cancelled at a fast pace. Since mid-March, some 875,000 tonnes on warrants have been cancelled. Available metal now stands at 1.24 million tonnes. With less metal available on the LME, the analysts observe, the market could get tight and it has done so – the c-3s spread is last at $6-4 back, a sure sign of short-covering.

There are, however, no large warrant holders – no doubt the former large holders are now sitting in the exit queue.

The IAI data for March was bearish but the industry experts say, they feel February’s data for China has distorted the picture.

Longer-term view

Fundamentally, industry watchers are not bullish but they say, if metal is still being put into off-market financing deals then enough of it may be kept off market to underpin prices, especially if the outlook for demand is picking up given the better Chinese data out of late.

Despite overall bearish fundamentals, the mechanics of the market that are facilitating more financing seem to be keeping enough metal off market to provide a base for aluminium prices. As observed previously, there may be some room on the upside given better economic data. This is playing out now and it may have further to run. But the analysts also think it will be seen and taken as a hedging opportunity by marginal producers, which could end up pulling the rug from under the rally.

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