SMM Daily Review - 2012/5/21 Aluminum Market

SHANGHAI, May 22 (SMM) – The most active SHFE aluminum contract for August delivery opened higher at RMB 16,045/mt and settled up RMB 100/mt or 0.62% at RMB 16,125/mt, as shorts chose to take profits. Positions dropped 2,774 lots to 88,028 lots. The slight rebound was driven by recent gains in LME aluminum and the market sentiment should remain cautious. SMM expects the contract to test pressure at the 30-day moving average in the near term.

Spot aluminum traded at RMB 16,040-16,070/mt in Shanghai, at discounts of RMB 0-30/mt over current-month SHFE aluminum prices. The trading band in Wuxi is RMB 16,060-16,080/mt and is RMB 16,050-16,070/mt in Hangzhou. The wait-and-see sentiment was strong at downstream buyers despite higher SHFE aluminum prices. Quotations varied with ingot qualities. The overall traded volume was light as supply was sufficient.

An SMM survey on this week’s aluminum prices covered 35 traders, among which 12 expect gains, 22 see little change and 1 says aluminum prices will drop.

The 12 optimistic traders draw their conclusion from gains in SHFE aluminum even though other base metals shed losses. The most active SHFE aluminum contract climbed for three successive trading days and succeeded in breaking through RMB 16,125/mt. These traders also believe slight discounts of RMB 0-40/mt will be maintained during spot trading.

The 22 traders holding neutral views say the current-month SHFE aluminum contract, though rebounded while other base metals slipped, has stayed in the bottom range, and that overseas uncertainty, including Greece’s exit from the euro zone and renewed worries towards high debt yields in Spain, will continue to push up the US dollar, which will in turn weigh on LME aluminum and SHFE aluminum. The current-month SHFE aluminum contract also felt strong resistance at the 30-day moving average and more struggles therefore are expected at the 16,100/mt mark. Supply cuts by large producers when prices drop, on the other hand, will prevent heavy losses in the light metal.

The only pessimistic trader thinks that the recent rebound in aluminum prices is temporary and pressure from Europe will drag down the light metal. In addition, according to the trader, spot aluminum demand still lacks clears signs of improvement in the peak-demand period and increasing supply will prevent gains. The trader expects spot aluminum to drop below RMB 16,000/mt this week.