Aluminum looks vulnerable to pullback, iron ore less so – by Clyde Russell (Reuters U.S. – April 28, 2016)

LAUNCESTON, AUSTRALIA – If there is a common theme emerging from the recent strong gains in commodity prices, it’s that the extent of the rally isn’t justified by fundamentals and is therefore largely speculative.

Assuming this market consensus is correct, it’s logical to assume that at some point the heat will go out of the market and prices will stabilize or retreat.

It would also be logical to assume that the gains in some commodities have been more justifiable than those for others, given the differences in supply and demand dynamics. The question then becomes one of which commodities will hold more of their gains and which will be most vulnerable to a sharper pullback.

Iron ore and steel may be among the commodities best positioned to retain some of their gains, while aluminum looks to be one of the more at risk.

The main reason for this is the changing dynamics of the Chinese economy and the efforts by various authorities in the world’s biggest commodity consumer to remove some of the trading froth that has built up recently.

Aluminum on the Shanghai Futures Exchange has jumped about 17.6 percent since the start of the year to Tuesday’s close of 12,840 yuan ($1,981) a ton, near its highest in 10 months.

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