Aluminum and Nickel prices look toppy: Barclays

UNITED KINGDOM April 29 2014 6:37 PM

SHANGHAI (Scrap Register): China fears continue to hound the market triggering liquidation this week. Barclays does however expect the flow of China-related data to improve going forward which suggests the balance of risks for copper prices may now be shifting to the upside.

As Barclays highlighted last week, Chinese market participants indicated metal demand had begun to pick up in China, and high-frequency data such as domestic physical premiums and the import arb were improving. In other metals, the big rallies in nickel and aluminum make prices look a little toppy, in Barclays view.

The run up in aluminum has been largely positioning-related, with the initial move higher triggered by CTA short-covering and subsequent momentum driven by new length being added in response to technical triggers.

However, Barclays thinks prices have run ahead of the fundamentals and expect them to retrace much of the rally in the same way these positioning-related moves have done several times in the past 12 months.

In the case of nickel, while there is a bullish fundamental supply-side story, Barclays thinks prices may have run ahead of themselves in the short term and see the risk of long liquidation.

LME stocks are high, total reported stocks-to-consumption the highest of any base metal and Chinese ore port stocks still plentiful. That said, Barclays favours buying dips ahead of a more sustained move higher in H2 and potentially significant upside in 2015.