SMM Aluminum Price Forecast (Jan. 28-Feb. 1)

SHANGHAI, Jan. 28 (SMM) - LME aluminum prices edged up after climbing to the 5-day moving average. Prices for the most active SHFE aluminum contracts, on the other hand, bucked the trend by falling. SHFE 1303 aluminum contract prices fluctuated between RMB 15,150-15,190/mt during the first three days of last week, but later lost support at RMB 15,150/mt, despite positive manufacturing PMI announced last Thursday in China. The March aluminum on the SHFE is expected to test support at RMB 15,100/mt in the short term.

Most aluminum processors in east China have cut or suspended production before Chinese New Year to preserve liquidity, curtailing pre-holiday restocking. Cargo holders, on the other hand, have become anxious to sell to raise cash and to avoid carrying excess inventories through the holiday. This drove a retreat in mainstream spot aluminum prices to RMB 14,920/mt, causing spot discounts to expand to RMB 130/mt even as SHFE aluminum prices have been falling as well. Downstream producers purchased only on an as-needed basis, while middlemen bought modestly at bottom prices, depressing overall trading. 

In this coming week, LME aluminum prices will continue to struggle at USD 2,050/mt and prices for the most active SHFE aluminum contracts will meet resistance at RMB 15,200/mt. Spot aluminum prices should test support at RMB 14,900/mt, with spot discounts expected around RMB 100/mt. Fewer downstream producers and traders will enter markets as the Chinese New Year nears.