SHANGHAI, May 4 (SMM) –About 57% of the 46 Chinese aluminum smelters surveyed by SMM expect aluminum prices to stabilize this week.
See SMM forecast, please click: LME Aluminum to Find Rising Strength from SHFE Aluminum, SMM Expects
Those neutral players see SHFE 1607 aluminum at RMB 12,600-12,850/mt and LME aluminum at USD 1,650-1,670/mt, citing several reasons. First, the price spread between SHFE 1606 and 1605 aluminum contracts expanded to RMB 25/mt. This left suppliers eager to sell, while downstream producers refrained from buying at higher prices, limiting upside room in spot prices. Spot discounts did not expand, offering support to SHFE aluminum. Second, some longs took profit last week, and the rest longs will probably take profit as well if SHFE aluminum rises to higher levels again. SHFE 1607 aluminum will meet strong resistance at RMB 12,850/mt. On the other hand, long buying was reported after SHFE 1607 aluminum fell to near the 10-day moving average, leaving little room for declines.
Another 39% see SHFE 1607 aluminum rising to RMB 13,000/mt and LME aluminum breaking through USD 1,686/mt. First, the US dollar will be soft due to low possibility of US rate hike in June. Second, negotiations between aluminum smelters and power plants over preferential power tariffs still drag on. Some smelters expressed concerns that this year’s preferential power tariffs may be higher than last year. This, plus rising alumina prices, will add to aluminum costs. Third, rising costs will slow pace of aluminum capacity restarts and new capacity release. Fourth, aluminum stocks in China’s five major markets fell about 40,000-50,000 mt each week on average, and are likely to fall to over 600,000 mt this week.
The rest 4% are bearish that SHFE 1607 aluminum will fall below the 10-day moving average and LME aluminum will fall below USD 1,650/mt. First, pullback in ferrous metals prices will drag SHFE aluminum down. Second, SHFE distant month aluminum contracts are performing not as well as SHFE near month aluminum contracts, and the price spread is expanding. This will trigger selloffs in SHFE distant month aluminum contracts. Third, the SHFE is likely to approve more aluminum ingots as delivery brands, which will give shorts reasons to enter the market.