Aluminium and copper prices have rallied strongly over recent weeks, reflecting the covering of short positions and the building of long positions by funds ken to secure the potential leverage to an economic upswing that base metals typically enjoy. However, the underlying fundamentals of both the aluminium and copper markets remain weak. The slump in consumption endured through last year now seems to have abated, but there are few signs of an increase in demand, in what is usually a seasonally strong period of the year for consumption.Consumer buying interest in the recent price rally has been limited, with premiums for physical delivery of both metals continuing at depressed levels. Meanwhile, the markets remain in surplus, reflected in ongoing increases in exchange inventories. LME copper stocks have increased to a record 919,000t, up 120,000t since the start of the year, while LME aluminium inventories have risen to 954,000t, up 135,000t sine December. That prices and inventories are increasing at the same time is not unusual-most cyclical upswings begin with both rising in tandem. Nevertheless, the pace of both price and stock increase over recent weeks has not been seen since 1994. While there is little doubt that economic growth will recover from the trough seen late last year, our concern remains that the pace of growth will ultimately disappoint. This could in turn encourage the unwinding of fund long positions and put renewed downward pressure on prices.
NSTL
