SMM Aluminum Price Forecast (Jan. 21-25)

SHANGHAI, Jan. 21 (SMM) - The Shanghai Composite Index was in correction and LME aluminum prices extended losses last week. Coupled with weak fundamentals in spot aluminum market, sell-off by shorts was triggered. Prices for the most active SHFE aluminum contract remained above RMB 15,200/mt last Monday, but fell the next day due to short selling and hovered around RMB 15,150/mt for the remainder of the week.

It was widely believed earlier that aluminum prices would stabilize above RMB 15,000/mt. The decline in SHFE 1303 aluminum contract prices last Tuesday triggered strong bearish sentiment. Aluminum processors have begun building stocks as the Chinese New Year draws near, but demand has been soft, dampening market confidence. Transportation problems prevented aluminum inventories in east China from growing, but oversupply pressure remains. Traders were anxious to sell at lower prices, sending aluminum prices down to near RMB 14,900/mt. Spot discounts rose above RMB 100/mt after SHFE 1302 aluminum contracts became the current-month contract. With bearish factors remaining, aluminum prices at home and abroad will come under downward pressure

LME aluminum prices will likely move lower in the coming week to test support at USD 2,000/mt, while SHFE 1303 aluminum contract prices will hover around RMB 15,150/mt as longs and shorts exit the market. Spot aluminum prices should test support at RMB 14,900/mt, with spot discounts above RMB 100/mt. Overall trading should be thin.