SMM Daily Review - 2011/10/24 Aluminum Market

SHANGHAI, Oct. 25 (SMM) – The most active SHFE 1112 aluminum contract gapped higher at RMB 16,390 on October 24th, and surged 2.9% in the afternoon to an intraday high of RMB 16,700/mt. The contract trimmed gains later, however, and finally closed at RMB 16,560/mt, up RMB 330/mt or 2.03% from previous trading day. Positions of the contract decreased 6,128 lots to 72,166 lots. The most active SHFE aluminum contract stood above the RMB 16,500/mt mark again supported by encouraging performance of the financial market. However, as spot aluminum prices failed to follow the move, the most active SHFE aluminum contract is expected to test support at the RMB 16,500/mt mark in the short term.

Traded prices of spot aluminum in Shanghai were between RMB 16,500-16,540/mt on October 24th, with premiums of RMB 0-50/mt over the SHFE current-month aluminum price.In the morning, SHFE aluminum prices rebounded further. However, spot aluminum prices failed to get on the upward track due to rare purchases from downstream buyers who were facing strong capital pressures at month’s end. Meanwhile, liquidating efforts of goods holders further damped the upward momentum of spot aluminum prices, with spot premiums over the SHFE current-month aluminum price quickly narrowing to near zero. Market transactions were quite rare as only a few middlemen replenished their stocks at lower prices.

In the afternoon, the SHFE current-month aluminum price hit an intraday high of RMB 16,745/mt, but most goods holders stood on the sidelines, and only a few middlemen purchased at lower prices. Mainstream traded prices of spot aluminum in the afternoon were between RMB 16,560-16,600/mt. Quotations above RMB 16,600/mt were also seen, but transactions were rarely reached at such prices.

The SMM weekly average aluminum ingot price during October 17th to 21st was RMB 16,586/mt, down RMB 408/mt or 2.4% from the previous week.

In a latest SMM survey, though investors’ optimism towards the EU Summit this Wednesday helped SHFE aluminum prices rebound, there are still 32% of market respondents expect domestic aluminum prices to drop this week. Their main reasons include, firstly, a unified monetary policy in the Euro zone and against different financial policies in various Euro zone countries remains a huge block to solve the Euro zone debt crisis, therefored the Euro zone economy will not improve in the short term. Meanwhile, domestic credit supply remains tight, which reduced the possibility for domestic demand to improve. Market supply, therefore, will become increasingly excessive. The rebound we saw on Monday, according to these respondents, is only temporary.

42% of market respondents said aluminum prices will not change much this week. According to their opinions, though the Euro zone debt crisis has slightly eased, there is no positive news from financial markets or fundamentals.

The remaining 26% of market respondents expect aluminum prices to climb this week, saying that support from the two plunges and excessive panic in the previous week, production cost which is now higher than present aluminum prices, strong capital pressures at aluminum producers will push aluminum prices a little bit higher this week.