Aluminum rose to a three-month high in London as the biggest monthly gain in a year spurred traders who had counted on a decline to reverse their bets.
The metal’s market open interest, or futures outstanding, fell 4.2 percent to 1.07 million contracts from the start of the month through July 29, London Metal Exchange data show. Prices rose 10 percent last month. The drop in open interest was probably short sellers buying back positions, said Robin Bhar, an analyst at Credit Agricole CIB in London.
“A lot of the increase in the price would have been because of shorts covering,” said Bhar. “If most of them have covered we would then tend to see the short-term hot money flow playing these markets from the long side.”
Aluminum fell as much as 16 percent this year because of concern that supply will outpace demand. The metal, used in transport, packaging and construction, rallied since early June on speculation that unprofitable smelters would shut and carmakers predicted record production this year.
Aluminum for delivery in three months rose as much as $28, or 1.3 percent, to $2,203 a metric ton on the LME today, the highest compared with intraday prices since May 4. The metal rallied 18 percent since June 7 and was at $2,202 as of 1:31 p.m. in London. One party holds at least 40 percent of the long positions, or bets on higher prices, expiring in August, LME data from July 29 showed.
Open interest reached a two-month low on July 28 and “we are now down to a level where arguably we shouldn’t go any lower and we should get some fresh buying coming through,” Bhar said. Aluminum for immediate delivery will average $2,100 this quarter and $2,300 in the fourth quarter, he said. The contract was at $2,184.50 today in London.
Billionaire Oleg Deripaska, chief executive officer of United Co. Rusal, the largest producer, said in an interview on June 9 that about 70 percent of the world’s smelters were unprofitable and some would shut. Aluminum closed at $1,928 that day. Carlos Ghosn, CEO of Renault SA and Nissan Motor Corp., predicted record global car production.
Prices also rose as stockpiles in warehouses monitored by the LME declined. Inventory peaked at 4.64 million tons in January and was at 4.38 million tons today, LME data show. One party holds 30 percent to 39 percent of the stockpiles, data from July 29 show.
About 70 percent of all the inventory is probably tied up in financing agreements, according to Mitsui Bussan Commodities. Rusal said in June it was in talks with other producers to supply metal for a possible exchange-traded fund.