Wednesday, 19 August 2015 19:05
LONDON: A large long position in aluminium for settlement in October on the London Metal Exchange could mean a period of tightness and price volatility for contracts across the maturity curve.
A taste of things to come can already be seen, with the premium for the October contract over metal for January delivery jumping to $ 4.50 from $ 1 per tonne on Monday. It is currently around $ 3.50 a tonne.
Elsewhere, the discount for the cash contract over the three-month contract has narrowed to $ 25 from $ 45 per tonne on July 21.
“There is a large long position for October, that’s where people are expecting problems,” one metals trader said. “I suspect other shorts are moving down the curve. We’ve seen spreads tighten elsewhere on the curve .
We could be in for a rollercoaster ride if that position doesn’t shift.” LME data shows one entity holds more than 40 percent of open interest for the October 21 prompt date.
With open interest at 115,340 lots, this equates to a holding of at least 46,136 lots, or 1.15 million tonnes. “It’s been there a while and may be physically related, however it is yet another ingredient that suggests the next few weeks may be volatile for spreads and prices,” ICBC Standard Bank analyst Leon Westgate said in a note. The market is “now even shorter of LME aluminium contracts than it was before, even with pockets of tightness beginning to emerge”, Westgate said. LME data also shows four holders short between 5-9 percent of contracts for October delivery.
The aluminium short rose to 29 percent of open interest as of August 13, according to data from brokerage Marex Spectron, which described it as the largest speculative short position in the base metals complex and the biggest in aluminium since August 2012.
Aluminium prices overall are under pressure from a global glut fueled by Chinese exports. Benchmark aluminium fell to a six-year low of $ 1,549.50 this week, down more than 20 percent since early May.
