SMM Aluminum Price Forecast (May 21-25)

SHANGHAI, May 21 (SMM) -- The risk of a Greek default is growing, but whether or not Greece exits the euro zone is still not certain. The European debt crisis intensified last week, inducing a sell-off of high risk assets, including base metal commodities, which helped push up the US dollar index to a high of 81 last Thursday. The high US dollar index pushed down metals prices, with LME aluminum falling to a new low for 2012 of USD 2,007.5/mt. Aluminum prices then leveled out and stabilized at USD 2,000-2,050/mt. The cut in the bank reserve requirement by the People’s Bank of China provided little support for markets, with the most active SHFE August aluminum contract price falling to RMB 15,900/mt, a new low for 2012. Technical support for contract prices failed to cover the price gap as support from less than 20,000 lots of transacted contracts proved insufficient, with prices also failing to reach the 10-day moving average. Spot aluminum was more resilient, however, falling from RMB 16,030/mt to only RMB 15,975/mt as sufficient supply and weak demand limited trading.

The outlook for the euro zone is grim and investors are losing confidence, while weak support from soft Chinese demand also failed to inspire markets. The US dollar index consolidated at 81 and may move higher. Base metals are still under downward pressure, so LME aluminum is expected to test USD 2,000/mt. Prices for the most active SHFE aluminum contract for August delivery may fall given a recent weak technical rebound. Although monetary policies in China continue to ease, prices for aluminum contracts with longer delivery terms will remain weak due to pressure from outside China. The August contract price has yet to find strong support at RMB 16,000/mt, while aluminum spot prices are also unable to withstand pressure from futures losses. However, spot prices will remain relatively firm since major aluminum producers have cut supply. Support can also be found from higher raw materials costs and steady demand. In this context, the trading band for aluminum spot prices should be RMB 15,900-16,050/mt over the short term.