Metals Update

Looking at the base metals complex this week, we start with aluminium, where producer flows above 2550 proved too difficult for the CTAs to break through. With momentum waning, we saw a pullback to 2450. Selling going back to October has additionally put pressure on the Oct-Nov backwardation which has moved from 14.5b to 2b since last Friday, and is currently trading at 6b at the time of writing.

Turning to copper, where after reaching its monthly high of 9453 on Tuesday, the three month outright price fell to below 9200 yesterday amid familiar concerns regarding Chinese demand recovery and the continued uncertainty regarding rate cuts. We saw a small rebound today, which was then met with resistance around the 9380 area. Looking at the spreads, rolls out of September moved the Sep-Dec spread to 125 contango, last trading now at 115 contango.

On zinc, rolls also moved the Sep-Dec spread close to its widest point, now currently trading at 45 contango.

The overall macro picture remains depressed as fears linger that China’s industrial sector is faltering further. In response to this, we are seeing an uptick in bearish volatility trades.

 

By Rachael Cotgreave, Broker, Derivatives (Dubai).