SMM Aluminum Market Daily Review (2013-4-22)

SHANGHAI, Apr. 23 (SMM) – SHFE 1306 aluminum contract was mired in the morning session after opening higher at RMB 14,575/mt on Monday. In the afternoon, SHFE copper plummeted, sending the low-end prices of the most active SHFE aluminum contract down slightly. Finally, SHFE aluminum for June delivery closed at an intraday low of RMB 14,515/mt, down RMB 45/mt or 0.31%. Positions contracted 1,698 lots to 66,750 lots. The most-traded SHFE aluminum contract found support at RMB 14,500/mt as bearish sentiment has abated, and should move in tight ranges in the near term.

Spot aluminum was traded at RMB 14,400-14,430/mt in Shanghai, a discount of RMB 80-110/mt over SHFE 1305 aluminum contract. Low-iron aluminum was traded around RMB 14,580/mt. SHFE 1306 aluminum contract moved in tight ranges. Spot aluminum temporarily stabilized, but bearishness over future prices remains. Cargo holders were eager to sell, but downstream producers and middlemen held to the sidelines, leaving mainstream traded prices at the lower-end of the price range. Prices in Hangzhou, in contrast, edged up due to tight supplies. In the afternoon, plunging copper prices dampened market sentiment, but limited declines in SHFE aluminum allowed cargo holders to watch from the sidelines. Sparse quotes were reported at RMB 14,400/mt, but trading was muted.

SMM aluminum price averaged RMB 14,420/mt on Monday, down from last week’s RMB 14,442/mt. A majority of the 38 aluminum ingot traders and producers surveyed by SMM expect aluminum prices to stabilize at RMB 14,400-14,450/mt this week. This is because limited short selling will help aluminum prices resist declines, despite plunging copper prices.

78% of market players expect spot aluminum prices to find support 14,400/mt this week. Slowing global economic growth depressed base metal consumption and copper prices plummeted, undermining market sentiment. On the other hand, the US dollar had limited upward momentum, which will offer some support to aluminum prices. Besides, cost support and short-covering will also help aluminum prices resist declines. As such, LME aluminum should hold stable at USD 1,850/mt, SHFE 1306 aluminum contract will hover near RMB 14,500/mt. Stock replenishment before the upcoming Labor Day in China will help spot aluminum prices move within RMB14,400-14,450/mt.

11% of market players believe spot aluminum prices will break through RMB 14,450/mt for three reasons. First, spot aluminum prices proved resilient to declines on Monday. Second. Downstream producers will build up stocks for the upcoming Chinese Labor Day. Third, short-covering will also help lift aluminum prices briefly. In this context, LME aluminum will likely climb to USD 1,900/mt again, while the most active SHFE aluminum contract will test resistance at RMB 14,600/mt, with spot aluminum expected to bounce back above RMB 14,450/mt.    

The remaining 11% hold the view that spot aluminum prices will be dragged by tumbling copper prices to below RMB 14,400/mt. LME copper retreated from USD 7,000/mt and SHFE copper also fell below RMB 50,000/mt. With bearish sentiment dominating the market, aluminum prices will edge down. LME aluminum is expected to find weak support at USD 1,850/mt, while SHFE 1306 aluminum contract may slip to RMB 14,400/mt. Spot aluminum will meet growing resistance at RMB 14,400/mt.