SHANGHAI, Oct. 9 (SMM) – The most active aluminum contract on the Shanghai Futures Exchange (SHFE), SHFE 1312 aluminum contract, hovered near its opening price after starting the day higher at RMB 14,370/mt on Tuesday. SHFE aluminum for December delivery was dragged down by falling SHFE 1310 aluminum contract to RMB 14,325/mt at the tail of the session, but did rebound later, closing RMB 70/mt higher at RMB 14,355/mt. Trading volumes were up 334 lots to 7,534 lots, but positions were off 2,358 lots to 71,484 lots. The light metal is expected to consolidate at high levels.
The price gap between SHFE 1310 and 1311 aluminum contracts expanded to over RMB 100/mt, causing backwardation over SHFE current-month aluminum contract to narrow. Meanwhile, more aluminum ingot arrived after the holiday, also keeping aluminum prices in check. Consumption improved as downstream producers began to replenish stocks in the wake of the week-long holiday. Mainstream traded prices in Shanghai were RMB 14,590-14,610/mt on Tuesday, RMB 14,600-14,620/mt in Wuxi, and RMB 14,610-14,620/mt in Hangzhou. In the afternoon, SHFE current-month aluminum contract dropped, dampening sentiment in spot markets and depressing trading.
SMM surveyed 40 large aluminum ingot producers and traders in China.
55% of the companies surveyed are worried that spot aluminum prices will fall below RMB 14,570/mt this week for the following reasons. First, growing arrivals will ease tightness in supply, causing backwardation to narrow. Second, aluminum prices will face downward correction following sharp gains seen before the week-long holiday. Third, demand after the holiday will not be as strong as before the holiday, which will weigh aluminum prices down. Fourth, dissatisfying US economic data will depress SHFE aluminum, which in turn will send spot aluminum down.
25% of market players covered in SMM’s survey expect spot aluminum prices to hold stable between RMB 14,570-14,610/mt this week. On the one hand, backwardation will fall now that supply has increased. On the other hand, strong SHFE 1310 aluminum contract will preclude any sharp decline in spot aluminum.
The remaining 20% are optimistic that spot aluminum prices will rise above RMB 14,610/mt. 1. Some aluminum smelters in Shandong and Henan cut production earlier against weak demand, which will create a shortfall of aluminum ingot and thus push aluminum prices up. 2. Those who refrained from buying before the Chinese National Day holiday due to high backwardation will probably rebuild stocks after the holiday. 3. Arrivals will be limited since transportation networks were tight during the 7-day holiday. 4. The arrival of seasonally peak-demand month will also underpin aluminum prices.