SMM Aluminum Market Daily Review (2014-3-17)

SHANGHAI, Mar. 18 (SMM) – SHFE 1406 aluminum contract started and closed last Friday’s night session at RMB 13,160/mt and RMB 13,155/mt, respectively. Trading volumes during the night hours totaled 2,730 lots, and positions added 228 lots to 106,490 lots. Escalation in the Ukraine crisis fueled bearish sentiment, causing the most active contract to hit a new low of RMB 13,080/mt on Monday and close RMB 60/mt lower at RMB 13,095/mt. Trading volumes during the daytime hours totaled 12,470 lots, and positions were up 3,458 lots to 109,948 lots. Prices will probably remain mired in negative territory since bearishness is still running rampant. 

Spot aluminum largely traded at RMB 12,620-12,630/mt in Shanghai on Monday, a discount of RMB 210-220/mt over SHFE 1403 aluminum contract, RMB 12,620-12,630/mt in Wuxi, and RMB 12,640-12,650/mt in Hangzhou. Delivery brand aluminum ingot gained favor since SHFE 1404 aluminum contract will switch to the new current-month aluminum contract tomorrow. Downstream producers continued to stand on the sidelines. In the afternoon, offers were cut to RMB 12,610-12,620/mt, but consumption remained sluggish.

SMM surveyed 32 large aluminum smelters and traders in China.

An overwhelming majority (69%) of those surveyed have painted a gloomy picture of this week’s spot aluminum prices, believing prices will fall below RMB 12,600/mt. First, the preliminary result of Crimea’s referendum came under strong criticism from the US and EU, causing the Ukraine crisis to escalate. This will keep investors cautious. Second, KDJ indicator of LME aluminum is now pointing downward, so prices may move lower to USD 1,700-1,750/mt. Third, concerns over a slowdown in the Chinese economy will send the most active SHFE aluminum contract down to RMB 13,000-13,150/mt. Fourth, aluminum ingot continues to arrive, but downstream producers are still taking a wait-and-see approach. This will exacerbate oversupply pressure and weigh spot aluminum prices down.

The remaining 31% expect spot aluminum prices to hold steady at RMB 12,620-12,680/mt. First, LME aluminum will likely prove resistant to declines and vacillate in a USD 1,715-1,750/mt range this coming week. Second, SHFE 1406 aluminum contract is now in “overbought” territory, meaning any further downside room will be limited. The most active SHFE aluminum contract may stage a technical rebound and fluctuate between RMB 13,100-13,200/mt. Third, relatively firm SHFE 14034 aluminum contract prices will lend some support to spot aluminum prices.