Aluminium recovers after touching four-and-a-half-month lows

Aluminium steadied on Tuesday, after touching four-and-a-half-month lows the previous day, as the dollar fell, but analysts expected more losses due to an overhang of inventories and to speculators adding short positions. Copper was slightly weaker following gains in the past week that had been spurred in part by a shortfall in physical metal.

Relative-value trades have been popular this year, including shorting aluminium and going long on copper, analyst Robin Bhar at Societe Generale said. In the last week to Monday, copper gained about 2 percent, while aluminium shed around 1 percent. "That could be a reason why we are seeing copper and aluminium going their own ways. Some of those trades are being put on because copper hasn't gone into surplus yet on a tangible basis and aluminium is still plagued by oversupply," Bhar said. London Metal Exchange (LME) three-month aluminium closed at $1,773 a tonne from $7,774.50 on Monday. It fell as low as $1,768 a tonne on Monday, the lowest since July 5.

Aluminium open interest on the LME rose by 8,082 lots on Monday, which combined with the lower prices, implied that fresh short positions were added. "Aluminium, of all the base metals, is facing some of the bigger headwinds given all the supplies tied up in warehouses and the new proposed changes in LME rules," said James Glenn, an economist at National Australia Bank in Melbourne.

LME stocks of aluminium at 5.4 million tonnes are within reach of record highs, with similar volumes estimated to be held outside exchange inventories, built up in the wake of the 2008 credit crisis. But LME aluminium has not been freely available to the market due to investor holdings and because of huge bottlenecks that have delayed delivery by a year or more in some locations. The LME, the world's biggest industrial metals marketplace, announced a tougher warehouse policy earlier in November to cut queues for delivery to a maximum of 50 days from over a year in some cases, after persistent complaints and a string of lawsuits from metal buyers. LME copper closed at $7,065 a tonne, down from $7,099 on Monday. Short-term supplies of refined copper remained tight in Asia after delayed shipments from a typhoon-hit smelter in the Philippines.

The metal complex received support from a weaker dollar, which was hurt by lower US yields. A softer dollar makes metals priced in the US currency cheaper for buyers outside the United States. Metals were also underpinned by data showing the number of permits for future US home construction rose to their highest in more than five years in October and that prices for single-family homes notched big gains in September. Copper is used in construction.

Markets volumes are expected to diminish ahead of the US Thanksgiving holiday on Thursday. In other metals, zinc closed at $1,886 a tonne from $1,903, while nickel was at $13,450 from $13,545, lead at $2,096 from $2,087.50, and tin at $22,900 from $22,945.