SMM Aluminum Market Daily Review (2013-1-21)

SHANGHAI, Jan. 22 (SMM) – SHFE 1303 aluminum contract prices opened slightly higher at RMB 15,245/mt on January 21. The contract immediately gave back gains in early session, dropping below RMB 15,200/mt as markets were pessimistic. Finally, the most active contract shed RMB 15/mt or 0.10% to close at RMB 15,160/mt. Positions were down 864 lots to 58,140 lots. Trading volume of SHFE 1303 aluminum contracts were less than 5,000 lots as there is little chance that LME aluminum will regain USD 2,050/mrt and as Chinese investors are standing on the sidelines due to the upcoming Chinese New Year. The most-traded SHFE aluminum contract is expected to hover at RMB 15,150/mt in the near term. 

Spot aluminum was mainly traded at RMB 14,950-14,960/mt in Shanghai on Monday, with discounts at RMB 120-130/mt. Low-iron aluminum was traded at RMB 15,050-15,060/mt. SHFE 1303 aluminum contract prices moved lower after a high opening, dampening market sentiment. Downstream restocking for the upcoming Chinese New Year was limited, while cargo holders were less willing to sell at lower prices, leaving mainstream traded prices stagnant at RMB 14,950/mt. In the afternoon, prices of the most active SHFE aluminum contracts edged down. Some traders in spot market remained active in moving goods, with offers at RMB 14,950/mt. Inquiries were rarely reported among downstream producers and middlemen, leaving overall trading muted.  

SMM statistics show that SMM aluminum price averaged RMB 14,970/mt on Monday, slightly lower than last week’s RMB 14,974/mt. According to SMM’s survey of 41 domestic aluminum ingot traders and producers, most of the surveyed market players expect aluminum prices to meet resistance at RMB 15,000/mt at the upper end and stabilize at RMB 14,950/mt at the bottom ahead of Chinese New year holiday.

54% of market players are neutral towards this week’s aluminum prices. They understand that aluminum prices are now moving within narrow ranges following a RMB 100/mt drop last week. LME aluminum prices have been stagnant at USD 2,050/mt for a week. Deadlocked debt ceiling issues in the US will constrain upward momentum of aluminum prices. However, the rebound of economic data from China and the US will help aluminum prices resist reclines. The most active SHFE aluminum contracts will thus hover around RMB 15,150/mt. In spot market, traders will refrain from selling at lower prices, while downstream producers will restock modestly before the upcoming Chinese New Year, thereby keeping aluminum prices stable. 

24% of market players are bullish towards this week’s aluminum prices and believe SMM aluminum prices will climb to RMB 15,000/mt for the following reasons. First, the US dollar index met resistance at 80, helping LME aluminum prices resist declines and stabilize at USD 2,030/mt at the bottom. Second, SHFE 1303 aluminum contract prices opened higher at RMB 15,200/mt on January 21, indicating that some investors are still willing to buy at higher prices. Therefore, prices of the most active SHFE aluminum contracts will likely regain earlier losses and spot aluminum prices will rise along to test resistance at RMB 15,000/mt.

The remaining 22% hold the view that aluminum prices will edge down and that SMM aluminum price will fall to near RMB 14,900/mt. LME aluminum and SHFE aluminum prices have been mired recently. Besides, markets are expecting no large-scale restocking in spot aluminum market ahead of Chinese New Year, triggering strong bearish sentiment. Cargo holders will be eager to sell, while downstream producers and middlemen will exhibit low buying interest, thus weighing down spot aluminum prices.