This week saw copper prices plunge in Shanghai and London, triggering the price circuit breaker early in the week. The circuit breaker prevents the price falling any more than 5% on any single day.

But aluminium did not follow copper down. Why?

We think there are several reasons. First, copper is more exposed to an economic slowdown in China. It is an industrial metal, where aluminium is more versatile. Second, copper had been subject to a lot of financing deals towards the end of last year, as liquidity tightened and people looked for ways to generate cash. Copper imports into China were being used as collateral for credit, but the fear of an economic slowdown caused players to liquidate their positions. Aluminium is subject to finance plays as well, but inside China those plays are more tied to smelters, not traders. Copper inventories are rising steeply as a result of the huge imports, but aluminium inventories have not risen, because the arbitrage window has not allowed for significant imports.

There’s also an argument that the shiny metal has found a floor price, where the red metal has not. A break of the RMB13000 barrier would cause further plant shutdowns, causing the price to rebound strongly, especially on the forward curve.

The copper drama of the last week is probably overblown. Certainly Barclays Bank thinks so, in their latest Metals Market Outlook. Copper prices are likely to recover quickly, but aluminium prices, having not had a dramatic drop, are unlikely to have a rebound.