Aluminium drifts lower on profit taking; copper spread spikes

LONDON: Aluminium prices edged lower on Friday as investors locked in profits from a rally, while shortages of copper and short-covering sent a key spread to its strongest since 2021.

Benchmark three-month aluminium on the London Metal Exchange slipped 0.2percent to USD3,251 a metric ton by 1615 GMT while three-month copper added 0.2percent to USD14,171 after earlier trading in the red.

LME copper has gained 9percent since touching a seven-week low on June 24 on declining inventories and tight supply outside the United States.

“We’re seeing some profit-taking after a strong run-up, but that uptrend looks fairly solid. The long-term drivers are not going to go away anytime soon and will continue to underpin prices,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. A rush by investors to cover bearish positions pushed prompt copper prices into the most extreme backwardation since 2021 on Friday ahead of a benchmark contract expiry next week.

The backwardation – a market structure whereby prices for prompt delivery are higher than those further forward – underscores a severe lack of inventories. The premium of the cash LME copper contract above the three-month forward hit USD434 a ton, up from USD45 two weeks ago and the strongest since October 2021.

LME copper inventories extended their decline on Friday to 204,975 tons, down 48percent since late May. The most-traded copper contract on the Shanghai Futures Exchange edged 0.1percent lower to 107,690 yuan (USD15,970.64) a ton. “Demand for base metals may appear resilient, but we still think it is questionable if it can sustain the same strong momentum given how quickly asset prices have accelerated while wage growth is somewhat subdued,” Fastmarkets analyst Andy Farida said.

LME zinc rose 0.2percent to USD3,760 a ton, lead added 0.3percent to USD1,893, nickel edged up 0.1percent to USD16,790 and tin gained 0.5percent to USD56,150.