Aluminum Prices to Gather More Strength on Multiple Positive Factors, SMM Says

Published: Oct 25, 2016 15:17
Aluminum prices fell after the Chinese National Day holiday due to growing inventories, but staged a strong comeback of late.

SHANGHAI, Oct. 25 (SMM) –Aluminum prices fell after the Chinese National Day holiday due to growing inventories, but staged a strong comeback of late. 

What’s behind the sudden price surge? Are more gains on the way?

SMM Exclusive: What’s Factor Behind Big Rise in China Base Metal Market on Tuesday?

The price gains boil down to four major positive factors, SMM understands. 

1. Rising costs: Alumina prices in China entered the upward track from mid-August, increasing nearly 50% up to now. Steam coal prices have moved all the way up this year, up as much as 108% so far this year, pushing up power costs.   

2. Market fundamentals show no obvious signs of weakening: The amount of aluminum capacity in operation has increased as rising aluminum prices triggered release of new capacity and restarts of idled capacity. Operational aluminum capacity is expected to increase another 300,000 tonnes in October, and output will grow to 2.81 million tonnes.  

Downstream demand remains positive. Aluminum stocks in domestic five major markets hit a record low of 234,000 tonnes as of October 24, SMM data showed. 
3. Impact from crackdowns on vehicle overloading: Crackdowns on vehicle overloading have slowed aluminum ingots shipments in some regions, reducing supply in major markets.   
4. Capital side: Investors raised bullish bets while shorts pulled out, given these positive factors. 

To sum up, SMM expects aluminum prices to challenge resistance at 14,000 yuan per tonne. 
 
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Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM's internal database model. They are for reference only and do not constitute decision-making recommendations.

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