SHANGHAI, Apr. 2 (SMM) – SHFE 1306 aluminum contract started the day lower at RMB 14,590/mt on Monday. Discouraging manufacturing PMI from China drove longs to exit the market, sending the most active aluminum contract down to RMB 14,550/mt. Finally, SHFE aluminum for June delivery finished RMB 55/mt or 0.38% lower at RMB 14,545/mt. Positions decreased 1,214 lots to 92,184 lots. SHFE aluminum was more resilient than other base metals as shorts did not increase positions. Absent market confidence, the most-traded SHFE aluminum should be vulnerable at RMB 14,500/mt.

Spot aluminum was mainly traded at RMB 14,390-14,420/mt in Shanghai on Monday, a discount of RMB 50-80/mt over SHFE 1304 aluminum contract prices. Low-iron aluminum was trade around RMB 14,600/mt. China’s manufacturing PMI for March rose less than expected, dragging down SHFE aluminum and fanning bearish sentiment. Traders were in a hurry to sell, but downstream producers stayed out of the market, despite increasing liquidity at the start of the new month. This drove spot aluminum down to RMB 14,400/mt, with a few transactions even concluded at RMB 14,390/mt. Further price declines are expected. In the afternoon, some traders remained eager to move goods at RMB 14,390-14,400/mt, but few deals were completed.

SMM aluminum price averaged RMB 14,520/mt on Monday, slightly up from last week’s RMB 14,514/mt. A majority of the 44 aluminum ingot traders and producers surveyed by SMM are bearish toward this week’s aluminum prices.

60% of market players believe aluminum prices will fall below RMB 14,400/mt this week for three reasons. First, Cyprus obtained bailout fund at the expense of its large bank depositors, and Italy is facing an imminent renewed general election, triggering market worries. Second, China’s manufacturing activity points to expansion, but growth was limited, dampening confidence over a rebound in market demand. Third, investors will be cautious before the release of manufacturing PMI and employment data from the US and upcoming Chinese Qingming holiday. In this context, LME aluminum may lose support at USD 1,900/mt, SHFE 1306 aluminum contract should also be vulnerable at RMB 14,500/mt. Growing oversupply pressure will drag spot aluminum prices down below RMB 14,400/mt.   

The remaining 34% of market players expect aluminum prices to hover between RMB 14,400-14,450/mt this week for two reasons. First, China’s manufacturing PMI has stayed above 50 over the past sixth months, a sign the Chinese economy has bottomed out. Second, optimism over manufacturing activity and labor market in the US will offset worries over the European debt crisis. This will drive the US dollar index down to struggle at 83, helping aluminum prices resist declines. As such, LME aluminum will hold steady at USD 1,900/mt, while prices for the most active SHFE aluminum contracts are expected to struggle at RMB 14,600/mt. Stock replenishment before the Chinese Qingming holiday will help spot aluminum find support at RMB 14,400/mt.