SMM Aluminum Market Daily Review (2013-11-11)

SHANGHAI, Nov. 12 (SMM) – Better-than-expected US non-farm payrolls helped January aluminum on the Shanghai Futures Exchange (SHFE), the most active one, open higher at RMB 14,325/mt on Monday. The light metal, however, briefly dipped to RMB 14,290/mt in early morning session and met resistance at the 60-day moving average as worries over QE3-tapering remained. SHFE 1401 aluminum contract closed the day at RMB 14,305/mt. Trading volumes increased 1,038 lots to 3,424 lots, and positions also added 528 lots to 43,134 lots. 

Spot aluminum prices were RMB 14,420-14,430/mt in Shanghai, a premium of RMB 20-30/mt over SHFE current-month aluminum contract. Prices were RMB 14,420-14,430/mt and Wuxi, and RMB 14,400-14,410/mt in Hangzhou. Downstream producers in Shanghai held to the sidelines, little interested in buying. Suppliers in Wuxi held offers firm, but high quotes undermined buying interest. In the afternoon, spot markets quieted down.   

SMM surveyed 31 large aluminum producers and traders in China.

32% of companies covered in SMM’s survey believe spot aluminum prices will rise above RMB 14,450/mt this week. First, better-than expected US non-farm payrolls for October and Q3 GDP signal sustainable recovery in the world’s largest economy, which will boost demand for base metals. Second, production at aluminum smelters in Xinjiang will slow down with the onset of winter. This will cut into aluminum supply and push aluminum prices up.

16% of the market participants are bearish that spot aluminum will retreat from RMB 14,400/mt, arguing that a stronger greenback will weigh LME aluminum down. Downbeat European economic indicators sent the euro down while driving the US dollar index up. In the meantime, recent positive US economic figures have reignited worries over QE3-tapering, which will push the US dollar index up further. Falling LME aluminum will drag SHFE aluminum down, which in turn will weigh spot aluminum prices in China down.

The remaining 52% expect spot aluminum to remain stable between RMB 14,400-14,440/mt this coming week. First of all, forecast-beating US no-farm payrolls will lend only marginal support to base metals as markets are worried that improving labor market will prompt the US Federal Reserve to trim bond-buying program later this year. Second, although downstream producers in north China will scale back raw material purchasing in winter, those in south China will be little affected. Third, continuously falling aluminum inventories will also prevent aluminum prices from falling.