SHANGHAI, Feb. 5 (SMM) – SHFE 1305 aluminum contract became the most active one and opened slightly higher at RMB 15,335/mt on February 4. The most active aluminum contract pared gains shortly after shooting up to RMB 15,375/mt, meeting resistance at the 30-day moving average, but did find support at the 5-day moving average. Trading volumes were up nearly 20,000 lots. Finally, the most-traded aluminum contract closed at RMB 15,330/mt, up RMB 40/mt or 0.26%. Positions were up 10,424 lots to 55,112 lots. All base metals rose along with LME aluminum prices, except for SHFE aluminum prices, which were mired. The most active SHFE aluminum contracts should hold stable at RMB 15,300/mt in the short term as short selling pressure will wane before the Chinese New Year.
Spot aluminum was mainly traded at RMB 14,910-14,920/mt in Shanghai on Monday, with discounts at RMB 80-100/mt. Low-iron aluminum was traded around RMB 15,000/mt. Prices of the most active SHFE aluminum contracts drifted lower after a low opening, regardless of other surging base metal prices. Cargo holders were anxious to sell against growing inventories, but inquires were rarely heard since most downstream producers and middlemen are on Chinese New Year holiday early, stalling any uptick in spot aluminum prices. Overall trading was muted.
SMM data shows that SMM aluminum price averaged RMB 14,930/mt on Monday, up from last week’s RMB 14,912/mt. Cargo holders were eager to sell against mounting inventories, but consumption was sluggish as Chinese New Year is drawing near, keeping aluminum prices in check. Most of the 31 domestic aluminum ingot traders and producers surveyed by SMM expect aluminum prices to stagnate at RMB 14,900/mt during the last week before the Chinese New Year due to growing oversupply pressure, despite bright economic outlook.
32% of market players are bullish towards this week’s aluminum prices for the following reasons. First, most of the January economic data from major economies was positive, a sign of economic recovery and boosting market confidence. Second, the US stock markets and Shanghai Composite Index soared, making the US dollar index vulnerable at 79. A weaker US dollar has helped commodity prices extend gains. Third, LME aluminum prices have found support at all daily moving averages, albeit meeting resistance at USD 2,150/mt. SHFE aluminum prices rose slower, but investors are optimistic towards trading during the Chinese New Year. Positions of the most active SHFE aluminum contracts surged on Monday, so the light metal will probably rebound post-holiday. With the Chinese New Year only a few days away, few suppliers and buyers will enter spot aluminum markets. Sparse offers will edge up with SHFE aluminum prices, and spot aluminum prices will test resistance at RMB 14,950/mt.
The remaining 68% expect SMM aluminum prices to stabilize at the bottom. The rebound in macro economy has enabled LME aluminum prices to extend gains. However, spot aluminum stocks are mounting in Chinese markets and will probably exceed 1 million mt post-holiday since demand will be tepid this week. Cargo holders are in a hurry to sell to ease pressure from high inventories and to increase liquidity. This will drag aluminum prices down to RMB 14,900/mt.