SMM Aluminum Market Daily Review (2013-10-21)

SHANGHAI, Oct. 22 (SMM) – December aluminum on the Shanghai Futures Exchange (SHFE), the most active one, started Monday lower at RMB 14,340/mt, but broke through the 5-day and 10-day moving averages to RMB 14,395/mt at the tail of the session. Finally, the light metal closed up RMB 20/mt at 14,385/mt. Trading volumes increased 312 lots to 2,684 lots, while positions shrank 1,284 lots to 60,518 lots. SHFE 1401 aluminum contract may shift to the most active contract soon.

Mainstream traded prices for spot aluminum in Shanghai were RMB 14,460-14,480/mt on Monday. Prices were RMB 14,430-14,450/mt in Wuxi, and RMB 14,440-14,460/mt in Hangzhou. Supply was tight in Shanghai, lending support to prices there. However, ample supply and slack demand forced cargo holders in Wuxi to sell at discounts. In the afternoon, traded prices remained unchanged, with thin trading reported.

SMM surveyed 33 large aluminum producers and traders in China.

33% of the companies surveyed believe spot aluminum prices will rise above RMB 14,480/mt this week. First, only a limited amount of aluminum ingot has arrived in east China, especially in Shanghai where supply remains tight. This will push spot aluminum prices up. Second, firm LME aluminum prices will provide upward momentum to SHFE aluminum, which in turn will lend support to spot aluminum in China.

Another 12% of market participants are bearish that spot aluminum will retreat below RMB 14,440/mt 1. There is an overhang of aluminum ingot in Henan, where aluminum prices have dropped by over RMB 100/mt. Sources indicate that surplus aluminum in Henan will be shipped to east China. This will add oversupply pressure in east China and drag prices there down. 2. SHFE aluminum may slide on bearish expectations for upcoming US economic figures after the US government reopens, which will weigh spot aluminum down as well. 3. Demand is waning, especially when the normally peak-demand season is coming to an end. Besides, large arrivals into Wuxi will also pull spot aluminum down. 
 
The remaining 55% expect spot aluminum to remain stable between RMB 14,440-14,480/mt.   On the one hand, downstream demand remains slack and traders are little inclined towards buying, acting as a brake against any spike in aluminum prices. On the other hand, large smelters were not in a rush to sell at discounts even when aluminum prices dropped sharply last week. Cargo holders will continue to hold offers firm this week, precluding any decline in aluminum prices.