(Repeats June 10 item; no changes to text)
By Andy Home
LONDON, June 10 (Reuters) - Rusal is bullish about
the aluminium price, believing that "a convergence of physical
and technical factors are now causing a realisation amongst
industry participants and investors that the price is
This is not exactly shock-horror headline news.
Producers of any commodity tend to be pretty bullish about
the market for the stuff they offer. After all, if the Russian
giant weren't optimistic for aluminium's prospects, it would
rather beg the question why is it still in the business,
particularly when the price has been bombed out for so long.
That, of course, might hold a clue as to why Rusal has
reminded everyone why it believes "industry participants and
investors" should be buying aluminium. The company has been
racking up losses, even with the generous dividend flow from its
stake in fellow Russian metals giant Norilsk Nickel, and
shuttering capacity as it tries to lower production costs.
Indeed, this is just the latest in a series of
pronouncements from a company that never tires of banging the
What is interesting about this one is the focus on those
short-term "technical factors". The statement came out on Monday
morning, just after London Metal Exchange (LME) three-month
metal had staged its best weekly close in two months at
$1,879 per tonne.
The only thing that Rusal didn't mention is what might have
provided the impetus for Friday's close.
A SIGNIFICANT CLOSE
It was indeed a significant move for aluminium last Friday,
the price piercing a band of technical resistance in the
To quote from Rusal's statement: "As the price moved through
$1,850/mt on Friday, 'stops' were triggered that initiated
significant trading volume, both covering previous short
positions and creation of new longs, with the market entering a
very constructive phase."
The short-covering momentum carried over into Monday,
three-month metal surging to a near 10-month high of $1,918
before the inevitable profit-taking reaction back below $1,900.
At the time of writing, the price was hovering around that big
A gold badge, it seems, for Rusal's forecasting prowess,
since it foretold that the price could test exactly that level
"this week" and potentially $2,000 "during the next few months".
OPTIONS VOLUMES SOAR
It's evidently not alone because one of the glaring
omissions from its short-term market analysis is where that
Friday surge originated.
That particular piece of the jigsaw was picked up by
analysts at Marex Spectron, writing in the company's "Morning
Spark" research note on Monday.
"At the end of Friday, the market saw a large bullish
aluminium min-max trade put on across the major months of
calendar 2015," they wrote.
A min-max, for those not versed in the esoteric world of
options trading, is the purchase of one strip of options offset
by the sale of another. In a bullish min-max it is calls,
conferring the right to buy, that are bought and puts,
conferring the right to sell, that are sold.
And sure enough, LME data subsequently showed massive
volumes going through the LME aluminium options market on
The major components of the day's activity are detailed in
the table below.
6 June Calls Puts
Strikes Volume OI Chg Strikes Volume OI Chg
Mar-15 $1,950 2800 1340 $1,800 2000 1000
$2,200 2000 1000 $1,875 300 150
Jun-15 $1,950 2800 1340 $1,800 2000 1000
$2,200 2000 1000
Sep-15 $1,950 2800 1400 $1,800 2000 1000
$2,200 2000 1000
Dec-15 $1,950 2800 1400 $1,800 2000 1000
$2,200 2000 1000
Total Tonnes 480,000 237,000 207,500 103,750
It's clear that upside calls were bought at $1,950 and
$2,200 on each of the quarter ends next year, with the purchase
offset by the sale of $1,800 puts.
THE HIDDEN PUSH
As ever with LME volume figures, they should be taken with a
pinch of salt, since the nature of the exchange's reporting
system can create a double-count problem. The truer scale of
Friday's min-max trade is probably captured by the change in
Even that, though, is significant with a total net 237,000
tonnes of major-strike call options added to open interest.
The impact on the futures price would have been two-fold.
Quite evidently, such a large options hit would be
psychologically bullish for those seeing the trade unfold,
simply on the basis that someone, and probably a major market
player, was prepared to bet so big on the upside.
Then there is the more tangible impact that comes from the
need to offset the resulting exposure, whoever sold the options
having to buy futures to "delta" hedge the options position.
Although long-dated, the nature of the LME forward curve
means the $1,950-strike options were close to the money on
Friday and, as of Monday's close, some of them are already in
The effect would have been amplified by the timing of the
trade, if it was indeed towards the end of the day and that
all-important weekly close.
Nothing wrong with that. Rather, it looks like a masterful
bit of strategic trading, intended to get maximum bang from the
And nothing's wrong with Rusal's other reasons to be bullish
for aluminium. It is no longer alone in forecasting a market
supply deficit this year, even if its 1.2-million-tonne
assessment is probably towards the top end of the analysts'
It's just on Friday itself there were close to a quarter of
a million very specific reasons to be bullish on aluminium.
(Editing by Dale Hudson)