SMM Daily Review - 2011/10/14 Aluminum Market

SHANGHAI, Oct. 17 (SMM) – The most active SHFE 1112 aluminum contract opened lower at RMB 16,610/mt on October 14th. Both longs and shorts had been continuously exiting the market due to stagnating prices. In the afternoon, after LME aluminum prices climbed, profit-taking activities by the shorts increased, which helped the most active aluminum contract return to the RMB 16,700/mt mark and finally close at RMB 16,695/mt, up RMB 5/mt or 0.03% from previous trading day. Positions of the contract decreased 2,922 lots to 93,594 lots. After China’s September CPI came out meeting market expectations, the bearish market sentiment slightly weakened. However, due to limited upward space for the metal, investors successively moved to commodities with stronger financial attributes. Total transactions stayed below 40,000 lots. SHFE aluminum contracts closed mixed during the day showing stronger stability than other metals. As the aluminum market will remain quiet in the short term, the most active SHFE aluminum contract is expected to meet strong resistance at RMB 16,700/mt.

Latest SHFE aluminum stock increased 39,754 mt to 117,132 mt, the first increase since February 18th this year. The main reason for this increase is deliveries following the last trading day for the SHFE current-month aluminum contract. Meanwhile, with increased aluminum stock following the National Day holiday and strong capital pressure, some goods holders used the futures market as a financing channel. Before the holiday, the SHFE aluminum stock dropped below 100,000 mt, a new low since early February. However. following the recent surge of nearly 40,000 mt, SHFE aluminum supply has become excessive.

Mainstream traded prices of spot aluminum in Shanghai were between RMB 16,900-16,930/mt in the morning on October 14th, with premiums of RMB 20-50/mt over the SHFE current-month aluminum price. Tight capital supply among downstream processors and weak terminal demand has led to an over 20% reduction in production orders. Those medium-to-small enterprises have even been pushed to the brink of collapse. The significant drop in aluminum demand also led to a prevailing bearish market sentiment. Though slight spot premiums were maintained, purchase orders were hardly received among goods holders whose aluminum stocks have recently seen increases following the National Day holiday. Market deals were extremely limited as a result. In the afternoon, after the SHFE current-month aluminum price climbed to near RMB 16,900/mt, spot premiums over the price also disappeared. Mainstream traded prices of spot aluminum in the afternoon were between RMB 16,890-16,910/mt. Some middlemen entered the market following this drop to replenish their stocks, but overall market transactions were limited.