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Aluminum Sees Short Selling as Demand Won’t Pick Up Until After Lantern Festival
Feb 1,2012 14:32CST
smm insight
Despite low buying interest, aluminum prices held above RMB 16,000/mt before the Chinese New Year.

SHANGHAI, Feb. 1 (SMM) -- Despite low buying interest, aluminum prices held above RMB 16,000/mt before the Chinese New Year. However, following the holiday, with a surge in aluminum stocks and as downstream processors still have not fully resumed production, which overshadowed gains in LME aluminum during the holiday period, the short selling atmosphere has becoming strong.

To generate data that objectively and accurately reflects the situation in China’s aluminum spot market, SMM surveys and collects data from spot aluminum traders across geographies, business models, and scales of operations. This data is then synthesized to yield transaction volumes, downstream purchasing volumes, trader inventory levels, flows of funds, as well as overall employment in the sector, among other representative statistics.

SMM’s most recent survey covered 34 aluminum traders spread across Shanghai, Wuxi, Hangzhou, Nanhai, Tianjin and Shenyang, representing an aggregate monthly trading volume near 230,000 mt.

For the period from January 16 to 30 including the one-week long Chinese New Year, the SMM China Aluminum Trading Index and transaction sub-index show domestic aluminum trading cooled considerably after the New Year’s Day holiday. Aluminum trading was only slightly active early in the month and had been contracting during following days, recording nearly a 50% drop in traded volume on a monthly basis.

Data from a most recent SMM survey on January 30 show the SMM China Aluminum Trading Index dropped steadily during the survey period to 26.6%, after a total slide of 8.4 percentage points. The transaction sub-index slipped 7.7 percentage points to 14.7%. Both of the two indexes had dropped to their lowest levels in 2012.

Aluminum stocks at traders almost doubled following the Chinese New Year, which showed as a jump of 20.6 percentage points in the trader inventory sub-index to 58.6% above the equilibrium line, meaning rapid increase. SMM statistics show Chinese aluminum stocks climbed by over 150,000 mt during the Spring Festival holiday from around 500,000 to 700,000 mt on January 30, weighing heavily on Chinese aluminum prices.

In a recent SMM survey on near-term aluminum price trends, over half market respondents hold a neutral view, saying that aluminum price will stay near RMB 160,000/mt since higher LME aluminum price will offset weak domestic demand. Pessimistic market players slightly increased compared with the previous survey as some goods holders lower their stocks in the face of bearish fundamentals following the Chinese New Year. A few market participants say aluminum price will climb in the near term as Fed maintains low borrowing costs until the second half of 2014 and with expectations of loosening monetary polices among investors. In the mean time, stock replenishments at some downstream businesses following the Chinese New Year will also help aluminum price gain, though the upward pace is limited.

Chinese New Year
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