SHFE aluminium to drop slightly on concerns of tightening liquidity and talk of SRB sell-off

SHANGHAI, Jun 7 (SMM) – The most-traded SHFE 2107 aluminium contract climbed to 19,020 yuan/mt before erasing some of the gains made in the previous week. The contract closed the week at 18,280 yuan/mt, down 390 yuan/mt or 2.09%.

The price decline was due to renewed rumours of sell-off by the State Reserve Bureau and concerns of tightening liquidity triggered by unusually positive US economic data. Outstanding performance of the US unemployment benefits, employment and PMI data ignited concerns that the Fed may tighten liquidity in the future.

This, coupled with the pullback in SHFE aluminium, weighed on LME aluminium, which hit a low of $2,390.5/mt and fluctuated by $117.5/mt. LME aluminium recorded three-day losing streak before rebounding slightly on Friday (June 4), trading at $2,430/mt on Friday afternoon, down $76/mt or 3.03% from the beginning of the week.

SHFE aluminium is expected to fall slightly this week and be susceptible to macroeconomic and policy influences in the short term. Concerns over tightening liquidity will grow if US non-payrolls and European economic data continue to improve. Aluminium prices will fall if the SRB releases aluminium ingots into the market, but the possibility of SRB sell-off is low following the sharp pullback in prices.

In terms of fundamentals, although July is the off-season, it is still one month away. Social inventory is most likely to continue declining amid smelter output cuts in Yunnan and Inner Mongolia. The most-traded SHFE aluminium is expected to move between 17,800-18,400 yuan/mt and LME aluminium between $2,350-2,450/mt. Spot discounts of 0-10 yuan/mt and premiums of 0-40 yuan/mt are expected over the SHFE front-month aluminium contract.