SHANGHAI, Jun. 12 (SMM) – The most active SHFE aluminum contract for September delivery started slightly higher at RMB 15,925/mt and settled up RMB 60/mt or 0.38% at RMB 15,925/mt on Monday. Positions added 2,366 lots to 99,414 lots. Sluggish spot aluminum consumption dragged on SHFE aluminum’s rebound; short term stagflation pressured all contracts at the RMB 16,000/mt mark. The most active contract should test support at RMB 15,900/mt.
Shanghai mainstream spot prices were RMB 15,900-15,920/mt, with low-iron aluminum trading at RMB 15,990-16,020/mt. China’s May economic data were mixed, and weak consumption is weakening aluminum’s momentum. The current-month contract struggled at RMB 15,920/mt. Selling interest of domestic market traders was high, but downstream buying was flat. Mainstream deals in Shanghai maintained small discounts. Wuxi, Hangzhou saw limited premiums. Overall trading was light.
An SMM survey shows Shanghai spot aluminum last week was sold at RMB 15,915/mt, down RMB 57/mt than a week earlier. The number of companies surveyed is 28, survey results are as below:
5 enterprises are bullish this week, accounting for 18% of respondents. They said spot aluminum ingot prices are already at the bottom in the short term, and with higher prices of other base metals, a slight rebound should be seen. On one hand, Spain's debt situation improves. LME aluminum and SHFE aluminum prices now face less pressure from Spain, presenting small corrections on Monday. Traders believe the correction will continue this week, as Greece's vote is not to be held until June 17. Euro-zone bond also delivered support earlier, indicating metals prices will reverse to gains. In the past week, the proportion of cancelled LME aluminum warrants stayed above 35%. 3Q spot aluminum premiums over LME, led by Japan, have soared to USD 200-210/mt. These signs indicate LME aluminum inventories will fall further for the short term, support LME aluminum. In the domestic spot market, spot aluminum prices stayed near RMB 15,900/mt for nearly a week and market demand is relatively stable, short-term fluctuation band is narrow. In addition, alumina and other raw materials costs rose, which will also continue to help aluminum prices stabilize and climb, the short-term high is expected at RMB 16,000/mt.
This week 15 enterprises see flatness, accounting for 53% of respondents. There common views are: first, although Spain’s debt situation has improved to lead spot and futures aluminum prices rebound, but the rebound momentum was clearly insufficient. The most active SHFE aluminum contract still face strong pressure at the 10-day moving average while support also exists at RMB 15,850/mt for the short-term. Capital flow and positions have not changed much. The most active contract moved stably at RMB 15,850-15,950/mt. Second, SHFE aluminum price trends will certainly affect the spot aluminum prices, whose discounts over the current-month contract held steady between RMB 40/mt. Domestic inventories are still near 720,000 mt and relatively stable. Downstream consumption has not seen any significant improvement, while upstream raw material alumina’s prices have shown signs of short-term gains, which is expected to support spot aluminum prices, making it difficult to drop sharply. Spot aluminum prices are expected to hold steady in the vicinity of RMB 15,900/mt in the short term.
This week 8 or 29% traders expect losses, with the proportion falling slightly. Most of these traders think short-term LME aluminum and SHFE aluminum prices still have downside space, meaning the most active SHFE aluminum contract has weak support at RMB 15,900/mt. When significant negative news comes out, LME aluminum price still has downside space. They say Spain accepting debt assistance still has not achieved its internal banking reform. Any market change may worsen its debt conditions. In addition, Greece’s vote is near, risk aversion is still strong and the US dollar will stay strong and SHFE aluminum still has downside space. In the spot market, supply is still large and aluminum smelters have not carried out wide output cuts, with their stocks remaining high. Downstream consumption is expected by most respondents to weaken starting from late June and aluminum supply will stay excessive. At this point, spot aluminum prices will drop to last week’s low, or below RMB 15,900/mt.