SHANGHAI, Jun. 4 (SMM) – SHFE 1309 aluminum contract became the most active one on Monday, which opened higher at RMB 14,845/mt, but then dipped to RMB 14,815/mt as investors were cautious. In the afternoon, SHFE three-month aluminum contract surged above RMB 14,900/mt on long buying. Finally, the most active SHFE aluminum contract closed at an intraday high of RMB 14,915/mt, up RMB 135/m or 0.91%, the best performer among base metals. Positions increased 2,230 lots to 49,376 lots. China’s May manufacturing PMI released by the National Bureau of Statistics and HSBC was in striking contrast, keeping investors wary. On the other hand, market fundamentals were positive, helping SHFE aluminum for August delivery extend gains, which should challenge RMB 15,000/mt in the short term.

Spot aluminum was traded at RMB 14,780-14,800/mt in Shanghai on Monday, a discount of RMB 20-40/mt over SHFE 1306 aluminum contract prices. Low-iron aluminum was traded around RMB 14,930/mt. Traders believe aluminum prices will rise this week as downstream producers build up stocks ahead of the upcoming Chinese Dragon Boat Festival. SHFE 1308 aluminum contract prices stabilized at RMB 14,800/mt, sending spot aluminum up to near 14,800/mt as well. Downstream producers held to the sidelines at the beginning of the week, while middlemen were active purchasing, allowing traders to hold offers firm. Low-priced goods were quickly sold out, but buying interest waned at higher prices. 

SMM aluminum price averaged RMB 14,770/mt on Monday, up from last week’s RMB 14,654/mt. A majority of the 44 aluminum ingot producers and traders surveyed by SMM are bullish over this week’s aluminum prices due to improving market fundamentals.

An overwhelming majority (68%) of market players believe aluminum prices will rise this week. First, aluminum inventories in trading markets dropped sharply by nearly 200,000 mt in May and will fall further to 1 million mt, tightening supply. Second, downstream producers will build up stocks before the upcoming Chinese Drag Boat Festival, also supporting aluminum prices. Third, the Chinese government has been working on measures to address aluminum overcapacity and protect the environment, which will force smaller aluminum smelters and those with outdated equipment to close. This will help improve market fundamentals, through only marginally. As such, LME aluminum will find support at USD 1,900/mt, while the most active SHFE aluminum contract will challenge RMB 15,000/mt. Spot aluminum is expected to climb to RMB 14,900/mt.  

The remaining 32% of market players are neutral toward aluminum prices this week. First, China’s May manufacturing PMI released by the National Bureau of Statistics and HSBC was inconsistent, indicating stable production at medium and large enterprises against poor orders at smaller enterprise, which will drag China’s economic growth. Second, the European economy improves some, but remains in recession. Mixed US economic data sent the US dollar index down only slightly. Longs will take profits at highs. On the other hand, improving market fundamentals will help the light metal resist price declines. In this context, LME aluminum will struggle at USD 1,900/mt, while the most active SHFE aluminum contract will hover at RMB 14,900/mt. Spot aluminum prices will break through RMB 14,800/mt, but will retreat from this price level after pre-holiday restocking is completed. Cargo holders will be more willing to sell at highs, but middlemen will shy away from high-priced goods, which will stall any substantial uptick in aluminum prices.