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SMM Daily Review - 2011/10/10 Aluminum Market
Oct 11,2011 09:49CST
SMM Comments
The most active SHFE 1112 aluminum contract closed at RMB 16,675/mt, up RMB 115/mt or 0.69% from previous trading day. Spot aluminum traded between RMB 17,000-17,040/mt in Shanghai.

SHANGHAI, Oct. 11 (SMM) – The most active SHFE 1112 aluminum contract opened higher at RMB 16,600/mt on October 10th following LME copper’s gains in the holiday period. After hitting RMB 16,700/mt in the afternoon with position increases among both longs and shorts, the contract finally closed at RMB 16,675/mt, up RMB 115/mt or 0.69% from previous trading day. Positions of the contract decreased 1,740 lots to 98,980 lots. Transactions of the contract were less than 40,000 lots during the day as most investors stood on the sidelines following the holiday. Since aluminum consumption will stay weak due to frustrating macro economic environment, the most active SHFE aluminum contract is expected to test support at RMB 16,500/mt in the short term.

Traded prices of spot aluminum in Shanghai were between RMB 17,000-17,040/mt on October 10th, with premiums of RMB 80-130/mt over the SHFE current-month aluminum price. The SHFE current-month aluminum contract opened higher to test RMB 16,900/mt during the day. Spot prices, however, failed to follow the climb due to significant increase of goods arrivals following the National Day holiday as well as the approaching change in the current-month aluminum contract. Spot premiums over the current-month contract also dropped below RMB 100/mt as goods holders were actively lowering stocks. Downstream stock replenishment was only made as-needed due to the prevailing bearish sentiment, thereby dragging down mainstream traded prices to near RMB 17,000/mt. High-grade supplies in the market nevertheless remained scarce. Market transactions slightly increased from pre-holiday trading.

SHFE aluminum prices opened higher on Monday after China’s National Day holiday. Meanwhile, downstream buyers in south China were eager to purchase for replenishment on the first weekend after the holiday, leading to a slight increase of local spot prices. Mainstream transactions were done at RMB 17,050-17,090/mt, resulting in premiums of RMB 50/mt over Shanghai from discounts seen in the pre-holiday market. With stock replenishment in the weekend and low orders, buying interest turned down on Monday, leading to inactive trading sentiment.

A latest SMM shows 43% of market respondents are bearish towards this week’s aluminum prices. Their pessimism is due to not only expectations for global economic weakness to continue given little improvement but worsening of the euro zone debt crisis, but also lasting tight monetary policies in China during the country’s hard inflation fight which already led to liquidity shortage in medium-to-small enterprises and forced these enterprises to the brink of collapse. Further more, increased goods arrivals following the National Day holiday pushed spot aluminum stock above 300,000 metric tons again, and with the delivery date approaching, which will narrow spot premiums, most market players believe aluminum prices will drop this week.

36% of market respondents are neutral towards this week’s aluminum prices. With production cost near RMB 16,800/mt, or even higher near RMB 17,000/mt at some aluminum producers due to higher electricity prices, aluminum prices are not likely to drop further supported by cost and lower selling off pressure from value-keeping activities at present price levels.

The remaining 21% of market respondents are pessimistic towards this week’s aluminum prices. Their confidence comes from cost support, LME copper’s gains during the National Day holiday, a higher opening following the holiday and downstream stock building demand.

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