SHANGHAI, Jan. 5 (SMM) –29% of the 34 Chinese aluminum smelters surveyed by SMM are bearish toward this week’s aluminum prices.
See SMM forecast, please click: What Is in Store for Aluminum Prices After Disappointing 2015?
Those pessimists fear that LME aluminum will fall below USD 1,480/mt and that SHFE 1603 aluminum will drop below RMB 10,600/mt, citing a series of negative factors: 1. Downstream consumption will cool as the off-season sets in, which will widen spot discounts; 2. Alumina prices kept falling, weakening cost support for aluminum; 3. Power tariff subsidies in Xinjiang, Gansu, Yunnan and Sichuan will reduce power costs for aluminum smelters; 4. The price spread between SHFE 1601 and 1602 aluminum contracts widened to near RMB 300/mt due to nearing delivery date. This will force cargo holders to sell at larger discount.
Another 29% are optimistic that LME aluminum will rise above USD 1,510/mt and SHFE 1603 aluminum will climb above RMB 10,800/mt, citing a series of positive factors. 1. Aluminum stocks in China’s five major trading markets will continue falling as more smelters will cut production; 2. Tightening supply in spot market will trigger a short squeeze on SHFE 1601 aluminum; 3. New aluminum capacity in northwest China will not be commissioned on a large scale. The rest 42% see SHFE 1603 aluminum stabilizing at RMB 10,600-10,800/mt and LME aluminum stable at USD 1,480-1,510/mt, due to the following reasons: 1. SHFE aluminum has found support at the 20-day moving average, and shorts will exit once prices fall to near RMB 10,600/mt; 2. Some aluminum smelters will open short positions for hedging purpose once SHFE aluminum rise above RMB 10,800/mt; 3. Despite tumbling Chinese A-share market, aluminum prices will face upward correction after falling sharply.