Aluminium hit a nine-month peak on Friday as speculators pushed prices higher thanks to a weaker dollar, but analysts were wary about a possible retreat. Copper and other industrial metals also clawed higher ahead of new economic data in China that investors hope will confirm that a recovery there is gaining strength.
"You look at aluminium, the only buying this week has been CTA buying, we still see no consumer activity, they're not chasing this price rally," said Citi analyst David Wilson. CTAs or Commodity Trading Advisors largely run speculative funds with trading decisions usually based on momentum and other technical factors.
"Aluminium is in overbought territory, given the fact we've seen decent volumes of producer hedging and I'd expect we'd see more going forward. Clearly, this looks overpriced," Wilson added. Three month aluminium on the London Metal Exchange closed up 0.8 percent at $1,678 a tonne, the highest since July last year. It posted gains of 10.3 percent for April, its biggest monthly gain since September 2012.
Even though aluminium inventories are high, nearly all of them are locked up in financing deals, reducing material available to the market. Also supporting the wider industrial metals complex was a softer dollar index, which fell for a fifth session to an eight-month low as data on Friday showed US inflation barely rose in March.
"It seems that the path of least resistance for most commodity markets is higher still, as the dollar selloff shows no sign of easing," analyst Edward Meir at broker INTL FCStone said in a note. "With the Fed effectively taking itself out on the rate hiking business - at least until June and maybe beyond that- dollar shorts will become more aggressive."
A more optimistic view of the economy of top metals consumer China also bolstered commodities. Data due on May 1 is expected to show that activity in China's manufacturing sector expanded modestly in April for the second month in a row, according to a Reuters poll, adding to hopes that a prolonged slowdown in growth in the world's second-largest economy is easing.
LME copper ended 2.2 percent firmer at $5,051 a tonne, adding to a 0.8-percent rise in the last session. Copper notched up a monthly rise of 4.2 percent, the biggest since April last year. The metal, widely used in power and construction, jumped to $5,091 a tonne last week, its highest in more than four weeks, on optimism about Chinese consumption after a slew of above consensus data on new loans, industrial production, investment and housing.
Nickel gained 1.7 percent to finish at $9,445 a tonne, bringing to 11 percent its total gains for the month, also the biggest since April 2015. Lead skated 3.1 percent higher to close at $1,805 a tonne, while zinc added 1.4 percent to $1,938.50 and tin rose 0.7 percent to $17,220.
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