Aluminum ETF Investors Getting Out as Metal Hoard Imperils Rally

(Bloomberg) -- ING Bank NV’s Oliver Nugent is warning the aluminum rally can’t last forever, and exchange-traded fund investors aren’t taking any chances.

On Friday, the metal in London posted its steepest weekly gain in records going back to 1987, just as shares outstanding in ETFS Aluminium, the biggest such fund tracking the metal, fell to the lowest since July. Investors have also been pulling money from iPath Bloomberg Aluminum Subindex Total Return ETN, data compiled by Bloomberg show.

While Nitesh Shah, a London-based commodity strategist at ETF Securities, said the outflow was “largely due to profit-taking,” the selling may be a harbinger, if Nugent is correct. About 5 million metric tons of the metal are held outside the London Metal Exchange, bigger than the 3.7 million-ton annual output of United Co. Rusal, which was slapped with U.S. sanctions, Nugent said. The off-exchange supply could move to LME warehouses as traders with short positions deliver the metal to close out bets on a price drop. Traders may also sell in the spot market to gain from soaring U.S. Midwest premiums, he said.

Aluminum ETF Investors Getting Out as Metal Hoard Imperils Rally

Aluminum for three month delivery has rallied 20 percent this month to $2,405 a ton in London amid concerns the sanctions will tighten global supply. The metal may reach as high as $3,000 amid supply disruptions from Rusal sanctions, said Jackie Wang, an analyst at CRU Group.

Nugent is skeptical the price can rally much more given the inventory overhang.

“There’s not going to be a more profitable time to exit,” Nugent, a commodities strategist at ING, said in a telephone interview. “The whole point we’re trying to give is some caution to the market, when you see these $3,000 headlines, it’s just not realistic given that the stock is sitting there.”

China’s Record Aluminum Exports Show It Could Blunt Rusal Shock 
LME Aluminum Inventories Rise 3.8% to Highest Since June
Aluminum Sanctions Convulse Market as Rally to $3,000 Forecast

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