SHFE Aluminium Is Expected to Retreat amid Pre-holiday Risk Aversion Sentiment

SHANGHAI, Jan 17 (SMM) - The most-traded SHFE aluminium contract rose before falling last week, which opened at 21,100 yuan/mt last Monday and closed at 21,160 yuan/mt on Friday afternoon, up 30 yuan/mt or 0.14% on the week with the exit of bulls. LME aluminium opened at $2,920/mt last Monday, and traded at $2,956.5/mt as of CST 15 on Friday, up $36.5/mt or 1.25% on the week with the entry of longs.

On the macro front, the increased possibility of four interest rate hikes by the US Federal Reserve in 2022 triggered profit-taking by investors who were bullish on the US dollar, resulting in a sharp pullback in the US dollar index. A weaker US dollar sent LME aluminium to a high of $3,030/mt.

In terms of fundamentals, the aluminium output in Yunnan and Shanxi is likely to increase slightly in January, but the overall supply will remain low. It’s unclear whether smelters will be required to reduce the production during the Winter Olympics. Downstream stocking is about to end, and consumption will weaken further as the Chinese New Year (CNY) approaches.

The potential exit of longs due to pre-CNY risk aversion will weigh on SHFE aluminium prices. The most-traded SHFE aluminium contract is expected to move between 20,500-21,300 yuan/mt this week and LME aluminium between $2,880-3,000/mt. Spot discounts and premiums in east China are expected at 0-50 yuan/mt and 0-20 yuan/mt respectively.

From a technical point of view, the most-traded SHFE aluminium contract may fall slightly and then bottom out this week. The random forest & time series model predicts the most-traded SHFE aluminium contract to move between 20,415-21,810 yuan/mt this week, and 19,345-22,080 yuan/mt in extreme case. The LSTM & time series model predicts that the average prices of SMM A00 aluminium will be 20,600-21,400 yuan/mt this week, and 20,400-21,890 yuan/mt in extreme case. In terms of futures technical indicators, the most-traded SHFE aluminium contract is likely to continue the downward trend and rebound after touching 20,300 yuan/mt. Since last Friday, technical indicators have sent early warnings of short-term price corrections. The trading volume and MACD indicator of the most-traded SHFE aluminium contract signaled divergent trends. The KDJ indicator formed a death cross last Friday. The RSI1 fell below the RSI2 last Friday. The BIAS/MA ratio showed a downward trend.