SHANGHAI, Jun. 25 (SMM) – LME aluminum slipped into negative territory for an eleventh straight day last Friday, but losses were limited, allowing SHFE 1310 aluminum contract to open flat at RMB 14,325/mt on Monday. The struggle between longs and shorts left the most active SHFE aluminum contract hovering at RMB 14,300/mt in the morning session. SHFE aluminum for October delivery, however, tumbled to RMB 14,235/mt in the afternoon session as a nearly 5.5% plunge in China’s A-shares triggered panic sell-off. Finally, the most active SHFE aluminum contract closed down RMB 70/mt or 0.49% at RMB 14,255/mt. Trading volumes decreased 3,970 lots to 10,426 lots, but positions added 3,254 lots to 66,964 lots. Judging from the technical indicator, SHFE aluminum for October delivery will meet strong resistance at RMB 14,300/mt in the short term.
Mainstream traded prices for spot aluminum in Shanghai were RMB 14,410-14,430/mt on Monday, a discount of RMB 10-30/mt over SHFE 1307 aluminum contract prices. Low-iron aluminum was traded around RMB 14,570/mt. SHFE 1310 aluminum contract held stable, boosting market confidence. Cargo holders remained eager to sell against tightening liquidity, and downstream producers and middlemen stepped up purchases before liquidity tightens further, helping mainstream traded prices hold stable at RMB 14,420/mt. Overall trading was modest. In the afternoon, SHFE aluminum fell along with A-shares and SHFE copper, turning sentiment in spot market bearish. A few traders held offers at RMB 14,400/mt, but trading was subdued.
SMM aluminum price averaged RMB 14,410/mt on Monday, down from last week’s RMB 14,622/mt. A majority of the 40 aluminum ingot producers and traders surveyed by SMM believe weak global economic growth, faltering demand and tightening liquidity at the end of mid-year will drag aluminum prices down this week.
An overwhelming majority (80%) of market players express pessimism over this week’s aluminum prices. First, sustained growth in the US economy will allow the US Federal Reserve (Fed) to exit QE3 early. A firmer US dollar will put downward pressure on commodity prices. Second, depressed economy in China and Europe are dragging down the global economic growth. In China, manufacturing activity pointed to contraction and stock markets tumbled, souring market sentiment. Third, LME aluminum inventories hit a new record high of 5.44 million mt, and aluminum ingot output in China is rising. However, consumption from aluminum plate, sheet, strip and extrusion sectors has slipped in June, except for a slight growth in demand from wire & cable industry thanks to bid invitation from State Grid Corporation of China. The result is that domestic aluminum inventories are dropping at a slower pace. Fourth, buying interest will dwindle further with tightening liquidity at the end of mid-year. In this context, LME aluminum will fall to test support at USD 1,750/mt, with the most active SHFE aluminum contract expected to struggle at RMB 14,200/mt. Spot aluminum will follow SHFE aluminum down to below RMB 14,400/mt.
The remaining 20% anticipate little changes in aluminum prices this week. First, LME aluminum closed with losses for twelve straight days and is now in “overbought territory’, which means LME aluminum will head for a technical rally. Second, Chinese smelters are suffering losses from continuously falling aluminum prices. Should aluminum prices fall further, more smelters will resort to production cuts, which will lend some support to aluminum prices. As such, LME aluminum will regain USD 1,800/mt, with SHFE 1310 aluminum contract expected to hover near RMB 14,300/mt. Spot aluminum will hold stable at RMB 14,400/mt, but trading will remain depressed due to tightening liquidity.