Aluminium Soars in Spite of Supply Overhang

LONGDON, June 9 -- Aluminium rose to its highest level for five months yesterday, defying data showing record stockpiles of the metal sitting in warehouses monitored by the London Metals Exchange.

    The price action prompted fresh debate among commentators, with many surprised at aluminium's recent gains considering its particularly negative fundamentals compared with its base metal cousins.

    While aluminium's price has jumped 10 per cent in the past two weeks on expectations of a recovery in global demand, LME data yesterday showed stockpiles at an all-time high of more than 4.27m tonnes - a rise of 500,000 tonnes since the start of May.

    "There are very high levels of overhang in the market and I think this will take a long time to work down," said David Wilson of Société Générale.

    "There is some underlying demand in China but in other major countries there is little sign of a pick-up," he added.

    Aluminium rose 2.8 per cent to $1612 per tonne.

    Data showing Chinese aluminium imports surged in April. While the country remained a net exporter of the metal, there was talk in the market that Shanghai aluminium traders were stockpiling to artificially ramp up prices - raising the prospect of a torrent of supplies in China later in the year.

    The rise in aluminium prices came as other metals consolidated recent gains. Copper shed 0.3 per cent to $4985 per tonne and zinc, lead and nickel all edged lower, but tin rose.

    In the energy market, US benchmark Nymex July West Texas Intermediate crude oil slipped 11 cents to $68.33 a barrel - down 3.2 per cent from Friday's seven-month high of $70.32. ICE July Brent, the European benchmark, shed 23 cents to $68.10.

    "Given the failure of WTI to confirm a break of $70 a barrel, some consolidation is likely," said Olivier Jakob, of Petromatrix, the Swiss-based oil consultancy.

    JPMorgan became the latest bank to lift its year-end oil price forecast, raising its target from $55 to $65 per barrel.

    Goldman Sachs last week turned bullish on oil, suggesting that prices could rise to $95 a barrel by the end of 2010.

    The strength of the US dollar against the euro was one of the main reasons behind the drop in oil prices yesterday, traders said.

    Spot gold fell 0.7 per cent from Friday's last quote in New York to $949.45 a troy ounce - the lowest level in more than a week - as it also suffered from the dollar's strength following a better-than-expected US employment report last week.

    Agricultural commodities were mixed. CBOT July soyabean surged to a fresh nine-month high at $12.39¾ a bushel.

    The surge pushed CBOT July soyameal to an 11-month high of $403.5 per tonne on continued supply fears after the crop in Argentina, the world's largest supplier of soyameal, was hit by a drought.

    Soyameal has only traded above $400 per tonne for a brief period in 1973 and during four weeks of last year.

    Wheat and corn moved lower, but prices were well supported as traders anticipated a drop in US crop inventories.

    The ICE July arabica coffee contract dropped 3.7 per cent to $128.90 as fears over potential frost damage to plants in Brazil abated.

    (Source: Financial Times)