SHFE Aluminium to Extend Gains on Potential Expansion of Supply Disruptions

SHANGHAI, Sep 13 (SMM) - The most-traded SHFE 2110 aluminium contract opened at 21,370 yuan/mt last week and hit a high of 22,890 yuan/mt on Friday. The contract closed the week at 22,670 yuan/mt, up 1,415 yuan/mt or 6.66% on the week. Bauxite and alumina prices climbed on supply concerns triggered by the political turmoil in Guinea. Rising coal prices intensified worries that aluminium smelters could potentially face tougher power curtailment. These factors contributed to higher aluminium prices.

The US Federal Reserve decided to postpone plans to reduce bond purchase, softening the US dollar and providing support to LME aluminium. LME aluminium opened last week at $2,737/mt and rose to $2,903.5/mt before trading at $2,894.5/mt on Friday afternoon, up $162/mt or 5.91% for the week.

Market is concerned that aluminium supply could decline further amid energy consumption control policy, tight power supply and coal shortage. Qinghai and Ningxia, which failed to meet energy consumption requirement in H1, are likely to step up production restrictions on aluminium smelters. Smelters in Guangxi may face further output cuts as they failed to implement production restrictions strictly. However, market also needs to pay attention to two downside risks facing aluminium prices. The first is the government meeting last Friday, which proposed to ensure coal supply and stabilise coal prices this winter and the following spring. The second is that downstream orders declined amid soaring aluminium prices.

The most-traded SHFE aluminium contract is expected to climb further to 22,500-23,300 yuan/mt and LME aluminium between $2,850-3,000/mt this week. Spot prices are expected to trade at discounts of 30-70 yuan/mt against the SHFE front-month aluminium contract.