Analysis: Why is LME aluminium price rising?

SHANGHAI, Dec 29 (SMM)－ LME aluminium saw strong upward momentum this week, hitting a high not seen since March 2012. Open interest has also increased to 690,000 lots from 662,000 mt, while the SHFE-LME ratios moved lower to around 6.7.

While SMM believed there is now limited room for LME aluminium to go up dramatically due to Chinese exports, there are several factors that have supported such movement.

Firstly, funds with long positions had better outlook towards the 2018 macroeconomy and they saw improving marginal demand for base metals.

In addition, some funds came in when the SHFE-LME ratio was at 7 with reverse arbitrage. Such risk aversion strategy helped the rise of LME aluminium when it looked to stop losses.

Separately, the conclusion of US anti-dumping case against Chinese common alloy sheet early next year is set tighten supply overseas. With enlarging supply shortage in 2018, an even lower SHFE-LME ratio is likely to stimulate China’s exports of aluminium products.

In fact, we have seen more covert aluminium exports due to low SHFE-LME ratio and high profits. Most of them are aluminium cast coils of 99.6-99.7% Al packed in pure aluminium rods and they were used as an alternative to aluminium ingots. Henan, Inner Mongolia, Gansu provinces are the major producing regions.

SMM expects China’s exports of unwrought aluminium and aluminium products in December would rise by at least 30,000 mt from November, and that it may increase further in January. 

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