SHANGHAI, Feb. 26 (SMM) – SHFE 1305 aluminum contract opened lower at RMB 14,910/mt on February 25. Longs liquidated positions, capping the most active aluminum contract under the daily moving average. Finally, SHFE aluminum for May delivery shed RMB 110/mt or 0.74% at RMB 14,840/mt. Positions were down 2,074 lots to 89,060 lots. The Shanghai Composite Index stopped falling, but markets remained bearish. Consumption growth should be limited for the near term, and this will keep aluminum prices in check. Resistance level for the most-traded SHFE aluminum contract has fallen to RMB 14,900/mt.
Spot aluminum was mainly traded at RMB 14,500-14,520/mt in Shanghai on Monday, with discounts at RMB 150-170/mt. Low-iron aluminum was traded around RMB 14,610/mt. SHFE 1305 aluminum contract prices slid, sending spot aluminum prices down to RMB 14,500/mt. Although some traders watched from the sidelines, most remained active in moving goods against liquidity crunch at the month’s end. No clear signs of improvement in downstream demand were seen on the first day following the Lantern Festival. Some middlemen went bargain-hunting after prices in Wuxi slipped below RMB 14,500/mt, but overall trading remained light. In the afternoon, spot aluminum market was quiet, with sparse offers at RMB 14,500/mt, but trading volumes were quite thin.
SMM aluminum price averaged RMB 14,690/mt last week, down RMB 172/mt on a weekly basis, and averaged RMB 14,520/mt on Monday. According to SMM’s survey of 32 domestic aluminum ingot traders and producers, most market players believe aluminum prices will continue to drop or move at low levels. Markets are awaiting demand to recover.
50% of market players understand that although economic indicators in China and overseas were less satisfying, the US dollar index stagnated near 81.5, which should limit the downside space of commodity prices. Besides, LME aluminum extended losses and has now sank to the BOLL indicator DN line, and this will likely entice longs to go bargain hunting. An expected rally in LME aluminum prices will help SHFE aluminum rebound. Still, SHFE 1305 aluminum contract prices will meet strong resistance at RMB 15,000/mt, curbing upward momentum of domestic spot aluminum prices. In this context, these market players expect spot aluminum prices to rebound to RMB 14,600/mt this week.
The remaining 50% believe SMM aluminum prices will extend losses this week. First, a firm US dollar, depressing European economy and sluggish consumption in China will continue to keep investors bearish. Second, falling LME aluminum prices will weigh down domestic aluminum prices. Third, spot aluminum inventories are growing steadily after the Chinese New Year and time is still needed before downstream producers can operate at full capacity. Coupled with tightening liquidity at the month’s end, spot aluminum prices will be vulnerable at RMB 14,500/mt this week.