SHANGHAI, Feb. 4 (SMM) - SHFE 1304 aluminum contracts became the most active contract last Tuesday and reversed downward trend later in the week as the rebound in Chinese economy has helped the Shanghai Composite Index extend gains for four straight days. Prices of the most active SHFE aluminum contracts flowed LME aluminum prices down last Monday, but did find support at RMB 15,200/mt later as market confidence grew. However, weak fundamentals promoted longs to take profits ahead of the upcoming Chinese New Year, so SHFE aluminum prices only toughed a high of RMB 15,265/mt, with resistance at the 20-day moving average.
Downstream aluminum processors are closing earlier this year for Chinese New Year than in years against past due to poor orders and as train tickets can be booked 20 days in advance. With most downstream processors on holiday, trading in the spot aluminum market was muted last week. Although many cargo holders refrained from selling to help support prices once spot aluminum dropped to RMB 14,900/mt, the rebound in SHFE aluminum prices did prompt some traders to aggressively destock. Only a small number of traders were buying, however, capping spot aluminum prices. No deals were completed after prices rose above RMB 14,940/mt.
In the coming week, LME aluminum prices will find support at USD 2,050/mt and test resistance at USD 2,100/mt. Investors will exit markets to avoid financial risks before the Chinese New Year holiday. Demand in spot markets will also be soft, so inventories will continue to grow. Pessimism over post-holiday prices will weigh down aluminum prices, so prices for the most active SHFE aluminum contract will struggle at RMB 15,200/mt. Spot aluminum offers will be around RMB 14,900/mt, but little trading activity is expected.