FOCUS - Ali hits 13-mth high on fund activity, participant’s question stability

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Kathleen Retournekathleen.retourne@fastmarkets.comJoint News Editor - Europe+44 (0) 20 7337 2144

London 18/08/2016 - The LME aluminium price was lifted on Thursday as funds and speculators piled into the metal, market participants said on Thursday.  

The lightweight metal broke above $1,700 per tonne to a session high of $1,709 and the strongest since July 2015. Since the start of the year – when it was trading around 2009 lows of $1,449 – it has seen a near 18 percent increase.  

“Aluminium was the ugly sister for a while and now it has recovered, I wonder how much longer it can hold but we are seeing some decent fund buying going through,” a trader said.

“Someone has taken a gamble that things will improve. Maybe not now but perhaps in six-months to a year things could improve fundamentally,” he added.

The latest LME commitment of traders report (COTR) showed that there had been fresh buying by longs as the gross long position climbed 8,420 lots last week.

“With prices running higher again in the absence of better economic data and a slow/weak physical metals market, it does suggest that investors are buying commodities as they see value in them. Metals prices are still relatively low compared with a few years back and with equities and bonds at high levels, it may be that investors are diversifying into the metals markets,” FastMarkets analyst William Adams said.

“Copper for so long outperformed and didn’t fall as fast as the others as it was tighter than the rest. But now the funds are leaving copper and are putting their money to work in those that they think have better fundamentals,” a trader added.

If the funds force the shorts to cover then prices could see further moves higher.  

“If you are short physical and didn’t hedge long on the LME to avoid paying broker frees, then one way or another you are going to have to cover and buy back at these higher prices,” the trader said.

Still, despite the increase, participants were not convinced that the move higher was sustainable as it did not reflect fundamentals and was being driven by technicals.

 “I am sceptical as it hasn’t miraculously seen a turnaround in fundamentals, but in a world of low yield funds go where they can and they are pushing the price up,” Robin Bhar an analyst at SocGen said.

Opinions differed as to when when the metal would top out, ranging from $1,725 to $1,800.

"Funds are desperate to get a return and will push it up and then bail out. They will look to see if they can get shorts to cover prices – it is all about timing,” Bhar said.

Since peaking in the morning, the metal has since drifted lower and was last at $1,695 as $1,700 hit resistance. How the metal will finish the week and month will provide further signals for direction, participants said.

“In the summer you get these price moves as liquidity is thinner, you will need to see what happens in a month’s time when the market is back. Likely to see some producer selling above $1,700 and the market will need to weather the forward selling,” Bhar said.

(Editing by Ian Walker) 



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