SMM Daily Review - 2012/1/9 Aluminum Market

SHANGHAI, Jan. 10 (SMM) – Despite a rebound of the Shanghai Composite Index to above 2,200 points, the most active SHFE three-month aluminum contract only gained a slight RMB 20/mt or 0.13% on Monday. Positions of the contract dropped 1,812 lots to 56,754 lots. The bearish market sentiment is gaining strength as stock replenishing demand has been weak ahead of the Chinese New Year. Investors are increasingly moving their positions backward, narrowing gaps between near term and long term contracts. SMM expects the contract to struggle at RMB 15,900/mt in the near term on light trading.

Traded prices of spot aluminum in Shanghai were between RMB 15,870-15,910/mt on Monday, with discounts of RMB 40-80/mt over the SHFE current-month aluminum price. In the morning, with the approach of the Chinese New Year holiday, demand among downstream buyers in East China was weak, while supply in the market was rather sufficient. With a bearish market outlook, goods holders were eager to sell goods for cash, resulting in various quotations, with discounts over the SHFE current-month aluminum price expanding to nearly RMB 100/mt. Transactions were quiet in general. In the afternoon, the SHFE current-month aluminum price climbed slightly. Quotations were sparse and fell between RMB 15,900-15,920/mt. Deals were hardly concluded as the spot market already entered the holiday pattern.

The SMM weekly average aluminum price stayed near RMB 16,000/mt for a fourth successive week as of last week, due to stagnating SHFE aluminum prices. SMM surveys show Chinese spot aluminum stocks have already broken through 400,000 mt after the New Year’s Day holiday. The downstream demand remained weak, however, as stock replenishment interest stayed low ahead of the Chinese New Year. Aluminum trading is only slightly active in the Guangdong region by virtue of tight supply. The bearish market sentiment is strengthening given a dim economic outlook. This is responded by pessimism of 20% market respondents in a most recent SMM survey. Remain 80% respondents expect aluminum prices to stabilize this week as a result of profit-taking by shorts, light trading, stable SHFE and LME aluminum prices and low interest to cut quotations given weak downstream demand.