Just when aluminium had begun to build momentum and it looked as though prices would finally overcome multi-month resistance at 2,850 dollars/tonne, investor confidence was shaken by the heavy sell-off in global equity markets in late February. After briefly touching 2,905 dollars/tonne during intraday trading on the 26th of the month, LME three-month aluminium prices fell to a low of 2,664 dollars/tonne just one week later as longs liquidated and profits were taken. However, as we write, the market is rallying again and looks to be gearing up to mount yet another challenge of 2,850 dollars/tonne. Aside from these oscillations of outright prices within what is now a very familiar trading range, the main development recently has been the narrowing of the cash-to-three month spread, which plummeted to a mere 4 dfollars/tonne backwardation on Friday, March 2. Fund rolling of long positions increased lending liquidity on the nearby dates, which put pressure on the cash price. Although having widened again modestly from early March's very small numbers, the backwardation has nevertheless eased significantly from last month. In March so far it has averaged 17 dollars/tonne, which compares to the February average of 72 dollars/tonne. Unless the shorts get nervous or prices find enough momentum to break through important buy signals, the spread should remain below last month's level, which in essence has eroded the dominant long's roll yield.
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