SHANGHAI, Jan. 15 (SMM) – SHFE 1303 aluminum contract prices dipped to the 5-day moving average after opening at RMB 15,270/mt on January 14. Prices of the most active SHFE aluminum contracts fluctuated in the band of RMB 15,230-15,250/mt in the session and finally finished at RMB 15,235/mt, down RMB 40/mt or 0.26%. Positions were up 112 lots to 62,370 lots. Stable LME aluminum prices and soaring Shanghai Composite Index failed to push SHFE aluminum prices up. The most-traded SHFE aluminum contract should continue to test support at RMB 15,200/mt in the near term.
Spot aluminum was mainly traded at RMB 15,030-15,040/mt in Shanghai on Monday, with discounts at RMB 0-10/mt. Low-iron aluminum was traded at RMB 15,100-15,120/mt. SHFE current-month aluminum contract prices extended losses, causing spot discounts to fall to zero before delivery of SHFE 1301 aluminum contracts and stimulating traders to sell. However, downstream producers and middlemen showed low buying interest, sending traded prices down to RMB 15,030/mt. Divergence among sellers and buyers over prices left overall trading thin. In the afternoon, some traders in spot market remained active in moving goods, but offers were lowered to RMB 15,020/mt. Inquiries were rarely reported, leaving overall trading muted.
SMM statistics show that SMM aluminum prices averaged RMB 15,050/mt on Monday, compared with last week’s RMB 15,046/mt. According to SMM’s survey of 48 domestic aluminum ingot traders and producers, most of the surveyed market players expect aluminum prices to hover around RMB 15,050/mt this week.
An overwhelming majority of 62% market players understand that the US dollar index has been falling recently and met strong resistance at 80. LME aluminum has found strong support at the 30-day moving average, helping domestic aluminum prices resist declines. There is little chance that SHFE 1303 aluminum contract prices will fell below RMB 15,200/mt for the foreseeable future. Spot aluminum inventories kept dropping due to transportation problems. Cargo holders held back goods to support prices after spot aluminum prices dropped to near RMB 15,000/mt, pushing aluminum prices up slightly. However, traders became aggressive in selling after prices rose to near RMB 15,100/mt, causing aluminum prices to pull back into correction. In this context, neutral market players expect aluminum prices to hover near RMB 15,050/mt.
21% of market players are bullish towards this week’s aluminum prices and believe SMM aluminum prices will climb above RMB 15,050/mt. First, Guo Shuqing, Chairman of the China Securities Regulatory Commission, said during the Asian Financial Forum that investment scale by RQFII and QFII can expand 10 times of the existing level. The surge in investment has helped the Shanghai Composite Index soar 3%. The rebound of confidence from investors will help SHFE aluminum prices rise along with LME aluminum prices. These bullish market players thus believe that LME aluminum prices will stabilize at USD 2,100/mt, SHFE 1303 aluminum contract prices should test resistance at RMB 15,300/mt and spot aluminum prices will rise mildly to near RMB 15,100/mt.
The remaining 17% hold the view that aluminum prices will edge down and that SMM aluminum price will fall to RMB 15,000/mt. Fund firms will restructure the proportion of base metals in 2013. For example, the proportion of aluminum in Dow Jones-UBS Commodity Index has already dropped to 4.9% from 5.9%, increasing short selling pressure. LME aluminum will likely lose support at USD 2,100/mt, and this will weigh down domestic aluminum prices. Despite falling domestic spot aluminum inventories, downstream processors are cautious towards pre-Chinese New Year restocking. Small and medium processors will close early for the Chinese New Year holiday. Investors will generally choose to close positions and stand on the sidelines before the Chinese New Year, and this will send aluminum prices down. These bearish market players anticipate that SHFE 1303 aluminum contract prices will decline to near RMB 15,200/mt and spot aluminum prices will test support at RMB 15,000/mt.