SHANGHAI, Jul. 10 (SMM) – The most active SHFE aluminum contract for October delivery started lower at RMB 15,480/mt and rebounded to a high of RMB 15,590/mt before settling down RMB 60/mt or 0.38% at RMB at RMB 15,535/mt. Positions increased a slight 448 lots to 109,320 lots while transacted contracts dropped to as low as 27,000 lots. A further drop in Chinese economic strength indicators weighed on investor confidence, pulling the Shanghai Composite Index near its one-year low. The contract should fluctuate in weakness near RMB 15,500/mt in the near term given soft fundamentals.

Spot aluminum was sold at RMB 15,560-15,590/mt in Shanghai, at discounts of RMB 40-70/mt over current-month SHFE aluminum prices. Low-iron aluminum was traded at RMB 15,660-15,670/mt. The inability of SHFE aluminum to recover from a lower opening led to price cuts by traders while downstream buyers mostly stood on the sidelines only purchasing as-needed when prices were satisfactorily low. Spot discounts expanded above RMB 50/mt and only a few deals were seen in the morning session. The limited recovery of SHFE aluminum in the afternoon failed to boost buying or selling, with only sparse quotations at RMB 15,560-15,580/mt being heard. No deal was done in the afternoon session.

A recent SMM survey on 38 aluminum traders reveals that the average traded price of spot aluminum in Shanghai was RMB 15,658/mt last week. 3 of the 38 traders expressed optimism towards this week’s aluminum prices, 10 are neutral while 25 hold bearish views. The proportion of bearish respondents increased in the survey as weakening demand and rising inventories have led to weak sales.

The 25 (66%) bearish traders said the macroeconomic side remains slightly negative. The Chinese economy is already on the downward track, proven by losses even after a surprise interest rate cut by the People’s Bank of China. Interest rate cuts in Europe on the other hand weakened recovery of the euro. Support from European leaders’ determination to solve the region’s debt crisis is being gradually consumed while a series of pessimistic remarks on the euro helped the US dollar index reach a new high above 83. Losses were induced for all base metals on the London Metals Exchange, with LME aluminum slipping for four successive trading days and finding only weak support at USD 1,900/mt.

The most active SHFE October aluminum contract retreated last week as LME aluminum dropped back. Liquidity injection through interest rate cut by central banks in China and Europe has highlighted weakness in real economies, which have led to even more fragile confidence among investors. Another SMM survey has revealed a second successive weekly, though slight, rebound in aluminum stocks and signs of even more gains. Demand, however, has been disappointingly weakening in the low-demand summer. Early power rate cuts for aluminum smelters have also weakened support from the cost side. These traders expect a trading band of RMB 15,450-15,550/mt for this week.

The 10 (26%) traders holding neutral views expect aluminum prices to held stable at RMB 15,550-15,650/mt this week, quoting a balance of buying support from large producers and pressure from weakening demand home and abroad. Remaining 3 (8%) bullish traders said aluminum prices will climb slightly to RMB 15,650-15,700/mt this week with support from producers, warming home sales and recent policies to boost economic growth.