SMM Aluminum Market Daily Review (2015-10-26)

SHANGHAI, Oct. 27 (SMM) –SHFE 1601 aluminum opened at RMB 10,490/mt on Monday, and quickly fell to RMB 10,380/mt as investors raised bearish bets. Prices then recovered to RMB 10,510/mt at one point, but fell back again later in the day. Finally, the most active contract ended down RMB 155/mt or 1.46% at RMB 10,465/mt. Trading volumes were down 3,402 lots to 357,000 lots, and positions were up 20,688 to 210,000. 

In east China spot aluminum market, suppliers released fewer goods into the market, and downstream buying picked up. This allowed prices to fall slower and narrowed spot discounts. Prices were mainly between RMB 10,280-10,300/mt in Shanghai, discount of RMB 180-160/mt over SHFE 1511 aluminum, versus RMB 10,260-10,300/mt in Wuxi, and RMB 10,260-10,270/mt in Hangzhou. In the afternoon, trading was thin, with prices reported at RMB 10,320-10,340/mt.

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

45% of them expect aluminum prices to stabilize this week: USD 1,500-1,530/mt for LME aluminum and RMB 10,345-10,600/mt for SHFE 1601 aluminum. These market players understand that investors will be cautious before key macro events. 

Another 44% are bearish: LME aluminum will fall below USD 1,500/mt, and SHFE 1601 aluminum contract will fall below RMB 10,345/mt, citing a series of negative factors. 1. Positions of SHFE aluminum index keep growing and hit 528,000 lots this Monday, reflecting massive entry of shorts. 2. Aluminum cost in China falls on government subsidies and falling coal prices. 3. Aluminum smelter production cuts in China are more than offset by growing new capacity. 4. Downstream producers will show low buying interest against continuously falling prices. 5. A strong US dollar index will pressure LME aluminum.  

The rest 11% are bullish: LME aluminum will return above USD 1,530/mt, and SHFE 1601 aluminum contract will rebound above RMB 10,600/mt. 1. Downstream buying has picked up slightly, and spot discounts showed signs of narrowing this Monday. 2. Cargo holders will be reluctant to sell against continuous price declines. 3. Aluminum prices will face upward correction after sharp falls. 4. It is rumored that some state-owned aluminum smelters will jointly cut production to support prices this week.