SMM Morning Review - 2011/3/29 Aluminum Market

NEW YORK/LONDON, March 28 (Reuters) - Copper suffered its biggest one-day loss in about three weeks on Monday, as concerns about sustained softness in Chinese buying and rising inventory levels continued to hold investment demand back.
Since hitting record highs at $10,190 per tonne in London and $4.6575 per lb in New York last month, prices surrendered as much as 12 percent of their value before settling into an aimless range over the last few sessions, awaiting any sign of life in the physical market, analysts said.
&quot;I don't expect to see any notable improvement in investment demand until physical demand shows some signs of improvement,&quot; said Catherine Virga, senior base metals analyst with CPM Group in New York.
London Metal Exchange (LME) benchmark copper CMCU3 closed down $150 at $9,535 a tonne, its largest daily decline since March 9.
COMEX May copper HGK1 copper shed 6.90 cents or 1.56 percent to settle at $4.35 per lb.
Trading volumes remained thin as lingering worries about unrest in the Middle East and Japan's nuclear disaster pushed many investors to the sidelines.
COMEX copper futures volumes slowed to 28,926 lots at 2:08 p.m. EDT (1908 GMT), about 40 percent below the 30-day norm, Thomson Reuters preliminary data showed.
&quot;Out of China you just don't hear anything positive. There is apparently a lot of stock hidden and not hidden in China,&quot; said Edward Meir, analyst with MF Global. &quot;There are questions about how strong demand from China will be.&quot;
Those questions have forced more and more investors out of the market.
Latest data from the U.S. Commodity Futures Trading Commission showed speculators cut their net length in futures and options by about 30 percent to the lowest level since September.
Even an unexpected rise in pending sales of previously owned U.S. homes failed to give the market a reason to move.
&quot;It is another small brick in the wall of recovery but maybe the market was hoping for a better figure,&quot; Alex Heath of RBC Capital Markets said.
SHORTFALL IN QUESTION
LME copper stocks extended their bearish trend in place since December, rising 625 tonnes to their highest level since July 2010, at 439,900 tonnes.
&quot;The rise in inventories indicates there is still quite a bit of unreported material still available, suggesting perhaps the market is not as tight as the price would suggest,&quot; said Daniel Major, analyst at RBS.
That lack of tightness has resulted in the market holding a $10 contango MCU0-3, a discount for cash material over the three-month contract. This compared with December's $70 backwardation, where there was premium for cash material.
Even so, European premiums for physical material CU-GA-ROT rose last week ahead of expectations of higher demand in the traditionally strong second quarter, when China is expected to return to the copper market.
&quot;With the potential for re-stocking in China if credit is loosened -- following the involuntary credit related de-stocking so far in 2011 -- there could be a perfect storm for copper by mid-year/third quarter,&quot; Macquarie said in a note.
In other metals, three-month aluminium CMAL3 went untraded in rings, nut was bid at $2,613 a tonne from $2,641 a tonne on Friday. It has been helped recently by expectations of higher energy costs in the smelting process.
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