SMM Daily Review - 2011/10/31 Aluminum Market

SHANGHAI, Nov. 1 (SMM) – The most active SHFE 1201 aluminum contract opened lower at RMB 16,490/mt on October 31st. After narrowly fluctuating near the intraday moving average during initial trading, the contract slipped to an intraday low of RMB 16,330/mt later due to profit-taking of longs and Japan’s US dollar buying move to curb appreciation of the Japanese Yen, which pushed up the US dollar index by over 1.6%. The contract slight rebounded at the tail of trading amid profit-taking by shorts, and finally closed at RMB 16,380/mt, down RMB 150/mt or 0.94% from the precious trading day. Positions of the contract increased 2,316 lots to 67,004 lots. SHFE aluminum prices had been hesitant towards climbing in the previous week, but seemed quite determined when they were moving down. Transactions volumes of the most active SHFE aluminum contract contracted to 25,000 lots. The contract is expected to meet stronger resistance at RMB 16,400/mt as the bearish market sentiment gained strength.

Traded prices of spot aluminum in Shanghai were between RMB 16,410-16,450/mt on October 31st, with discounts of RMB 10/mt to premiums of RMB 20/mt over the SHFE current-month aluminum price.

In the morning, the SHFE current-month aluminum price dipped to test support at RMB 16,400/mt. Bearishness ignited again this last trading day for spot aluminum in October due to tight credit supply and end of aluminum price rebound. The selling interest was strong among goods holders as a result, with quotations continuously slipping to even slight discounts over the SHFE current-month aluminum price. Market transactions remained sparse, however, as the buying interest was little improved.

In the afternoon, the SHFE current-month aluminum price met resistance at RMB 16,400/mt, and only sparse quotations at zero premiums or discounts over the former were seen, which did attract a few buyers though. Traded prices of spot aluminum in the afternoon were between RMB 16,350-16,390/mt. Transactions were quite limited.

The SMM weekly average aluminum ingot price was RMB 16,476/mt for the week from October 24th to 28th, down RMB 110/mt or 0.66% from the previous trading day.

In a latest SMM survey, 56% of market respondents expect domestic aluminum prices to be stable this week as the metal had already trimmed gains during the previous week, which was mainly due to a frame agreement from European leaders without any practical measures being provided, and high production cost will protect the metal from heavy losses.

Some 33% of market respondents expect domestic aluminum prices to drop this week, as downstream demand has already entered the hard time and strong capital pressure at year’s end, which will continuously force goods holders to liquidate at lower prices, already dragged low spot premiums over the SHFE current-month aluminum price. Meanwhile, aluminum futures prices also returned normal with forward contracts getting stronger.

Remaining 11% of market respondents expect domestic aluminum prices to gain this week. They believe that alleviated capital pressure in early November and rigid demand will help aluminum price stabilize. The improving situation in Europe and possible easing of domestic monetary policies will on the other hand help aluminum prices gain.