Lower social inventory to offer solid support to aluminium prices, eyes on macro front in the short term

SHANGHAI, Jul 13 (SMM) — The most-traded SHFE 2108 aluminium contract jumped above 19,000 yuan/mt to 19,350 yuan/mt at the beginning of last week, but erased gains in the following three days before stabilising on Friday July 9 and closing the week at 18,875 yuan/mt, a drop of 5 yuan/mt or 0.03%.

Trading volume was 1.125 million lots, and long positions decreased by 8,198 lots to 198,000 lots. LME aluminium climbed to $2,581.5/mt after opening the week at $2,560/mt, but pulled back following the US Federal Reserve’s hawkish speech, trading at $2,487/mt as of CST 17:40 on Friday, down $70/mt or 2.76%.

West Inner Mongolia imposed power curtailment again, but the impact on three local aluminium plants was limited. New and resumed aluminium capacity gradually released output. Aluminium consumption is showing signs of weakening in the off-season, but aluminium ingot inventory has not yet fully entered the accumulation cycle and is expected to decline slowly this week. On the macro front, the minutes of the Fed’s June meeting sent a hawkish signal, weighing LME base metals prices down, but prices are still relatively resilient. The People’s Bank of China announced that it will start to cut RRR by 0.5% on July 15, which is expected to increase market liquidity.

The macro front will have bigger impact on aluminium prices than fundamentals. The most-traded SHFE aluminium contract is expected to remain relatively firm and move between 18,500-19,200 yuan/mt this week. Spot discounts of 20-50 yuan/mt are expected over the SHFE front-month aluminium contract. 

Investment advice: buying LME aluminium while selling SHFE aluminium for arbitrage