Aluminium Prices Broke Through 20,000 yuan/mt on Supply Disruptions

SHANGHAI, Aug 2 (SMM) - The most-traded SHFE 2109 aluminium contract moved up after opening at 19,450 yuan/mt last week, and hit a high of 20,105 yuan/mt on Friday.

The contract closed the week at 20,085 yuan/mt, up 725 yuan/mt or 3.74%. Despite the off-season, supply disruptions sent aluminium prices higher. Aluminium ingot transportation by truck in Henan has not fully recovered from the flooding, and power curtailment in south-west China led to stricter-than-expected restrictions in local aluminium production. 

The US dollar index recorded four consecutive days of decline as a result of poor performance of US existing home sales, durable goods orders and unemployment rate. A weaker US dollar and soaring SHFE aluminium prices drove up LME aluminium. LME aluminium opened the week at $2,510.5/mt and rose to $2,629/mt before trading at $2,623.5/mt on Friday afternoon, up $115/mt or 4.6% for the week.

The market will focus on the impact of power curtailment in south-west China, recovery of truck transportation in Henan after flooding faded and the impact of spreading COVID-19 on downstream transportation and consumption, which may slow down the decline in social inventory of aluminium ingots.  Market players should also be aware that the State Reserve Bureau might release more aluminium ingots reserves. With the continued decline in aluminium inventory, aluminium prices will rise further this week. The most-traded SHFE aluminium contract is expected to move between 19,800-20,500 yuan/mt and LME aluminium between $2,580-2,700/mt. Spot discounts of 20-40 yuan/mt are expected over the SHFE front-month aluminium contract.

Investment advice: build long positions on SHFE aluminium for short-term arbitrage.