Alu­minium Looks Vul­ner­a­ble to Pull­back, Iron Ore Less so

The Economic Times - - Commodities Plus -

Clyde Rus­sell

Aus­tralia: If there is a com­mon theme emerg­ing from the re­cent strong gains in com­mod­ity prices, it’s that the ex­tent of the rally isn’t jus­ti­fied by fun­da­men­tals and is there­fore largely spec­u­la­tive. As­sum­ing this mar­ket con­sen­sus is cor­rect, it’s log­i­cal to as­sume that at some point the heat will go out of the mar­ket and prices will sta­bilise or re­treat.

It would also be log­i­cal to as­sume that the gains in some com­modi­ties have been more jus­ti­fi­able than those for oth­ers, given the dif­fer­ences in sup­ply and de­mand dy­nam­ics. The ques­tion then be­comes one of which com­modi­ties will hold more of their gains and which will be most vul­ner­a­ble to a shar- per pull­back. Iron ore and steel may be among the com­modi­ties best po­si­tioned to re­tain some of their gains, while alu­minium looks to be one of the more at risk.

The main rea­son for this is the chang­ing dy­nam­ics of the Chi­nese econ­omy and the ef­forts by var­i­ous au­thor­i­ties in the world’s big­gest com­mod­ity con­sumer to re­move some of the trad­ing froth that has built up re­cently. Alu­minium on the Shang­hai Fu­tures Ex­change has jumped about 17.6% since the start of the year to Tues­day’s close of 12,840 yuan ($1,981) a tonne, near its high­est in 10 months. Lon­don bench­mark alu­minium hasn’t ral­lied quite as hard, but is still about 9% higher from the end of last year to Tues­day’s close of $1,648 a tonne. The prob­lem for alu­minium is that, un­like steel and iron ore, there hasn’t re­ally been a pos­i­tive shift in the sup­ply-de­mand bal­ance, rather the op­po­site is more likely to be the case. In fact, it ap­pears that alu­minium out­put has been in­creas­ing both in­side and out­side of China re­cently.

The word ap­pear is used de­lib­er­ately given con­sid­er­able doubt about the ac­cu­racy of the fig­ures from China, which have shown mon­thto-month vari­a­tions that seem to bear lit­tle re­la­tion­ship to what is ac­tu­ally pos­si­ble.

China’s out­put in March was 2.62 mil­lion tonnes, or 84,500 tonnes per day, up from 71,400 tonnes per day in Fe­bru­ary, ac­cord­ing to the In­ter­na­tional Alu­minum In­sti­tute , which gets the data from the China Non­fer­rous Met­als In­dus­try As­so­ci­a­tion. — Reuters


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