SMM Aluminum Market Daily Review (2015-8-17)

SHANGHAI, Aug. 18 (SMM) –Entry of shorts caused SHFE 1510 aluminum to drop to RMB 12,020/mt after opening at RMB 12,100/mt on Monday. The most active contract recovered some losses before the closing bell rung, but still ended the day down RMB 40/mt or 0.33% at RMB 12,070/mt. Trading volumes were up 2,832 lots to 24,268 lots, and positions were down 464 lots to 139,546 lots. 

SHFE 1508 aluminum fell to RMB 11,950/mt after opening at RMB 12,040/mt on Monday. But the contract then rallied to close down RMB 15/mt at RMB 12,000/mt, with settlement price at RMB 12,010/mt. The amount of delivery for the contract was 57,075 mt.  

SHFE 1508 aluminum stayed firm at RMB 12,000/mt on its delivery date. Aluminum prices were mainly between RMB 11,955-11,980/mt in Shanghai on Monday, discounts of RMB 45-20/mt over August aluminum on the SHFE, versus RMB 11,950-11,980/mt in Wuxi and RMB 11,970-11,980/mt in Hangzhou. Supply remained plentiful, despite the delivery date of SHFE 1508 aluminum contract. Market was awash with non-deliverable brand. Deliverable brand ingot traded at premiums of RMB 0-10/mt. Downstream buying was poor, and trading was mainly between traders. In the afternoon, spot discounts of RMB 30-40/mt are reported. Trading was light. 

SMM’s latest survey of 38 large aluminum smelters, traders and processors in China reveals the following results:  

53% of them see little change in aluminum prices this week. LME aluminum should hold stable at USD 1,560-1,590/mt, versus RMB 12,000-12,180/mt for SHFE 1510 aluminum contract. More loss-making smelters in China are expected to cut output, given chronically depressed prices. Cargo holders will hold back goods once prices fall below their bottom line of RMB 12,000/mt. Yuan’s depreciation will boost China’s aluminum semis exports. There is little room for aluminum prices to fall further, which will keep investors cautious about opening short positions. All these factors will help put a floor under aluminum prices.   

The rest 47% are bearish. LME aluminum should fall below USD 1,560/mt, and SHFE 1510 aluminum contract might drop below RMB 12,000/mt. Downstream buying remains poor. Some traders that stockpiled large amount of goods earlier will begin to release goods into the market. Positive impact of yuan’s depreciation is fading. There is a good chance for the US Fed to raise interest rate, which will favor the US dollar. Commissioning of new aluminum capacity will exacerbate oversupply.