SHANGHAI, Feb 14 (SMM) - The most-traded SHFE aluminium contract opened at 21,920 yuan/mt last week and closed at 22,670 yuan/mt on Friday afternoon, up 720 yuan/mt or 3.28% on the week. LME aluminium opened at $3,090/mt last week and traded at $3,185/mt as of CST 15 on Friday, an increase of $100/mt or 3.24% on the week.
On the macro front, the US CPI rose 7.5% year-on-year in January, hitting a new high in nearly 40 years. Persistently high inflation data strengthened market expectations for the US Fed to raise its interest rates, putting pressure the non-ferrous metals market. The domestic thermal coal prices are unlikely to rally amid government intervention, which will provide little cost support to aluminium prices.
From a fundamentals point of view, the domestic aluminium production picked up, but the total operating capacity was lower than in the same period last year. According to SMM data, as of early February, the domestic operating aluminium capacity was about 38 million mt, a year-on-year decrease of 4%. The outbreak of the pandemic in Baise, Guangxi forced a local aluminium smelter to reduce its capacity by 400,000 mt. The pandemic also disrupted the shipments, exacerbating supply tightness in the spot market.
Most aluminium processing enterprises in north China did not resume their work immediately after the Chinese New Year (CNY). The environmental protection policies in Shandong, Hebei, and Henan have slowed the production resumption at the local processing enterprises. The supply and demand in south China outperformed those in the north.
From a technical point of view, the most-traded SHFE aluminium contract may correct down this week. The most-traded SHFE aluminium contract may find support near the MA10 moving average. If the fundamentals strengthen further, more bulls are likely to enter and the prices will move upwards to challenge the resistance at 24,000 yuan/mt. The random forest & time series model predicts that the price range of the most-traded SHFE aluminium contract will be [22130,23305] this week, and the extreme price range will be [21895,23880]. The LSTM & time series model predicts that the range of SMM A00 aluminium average price will be [22190, 23540] this week, and the extreme range will be [21950, 23790].
In terms of futures technical indicators, the most-traded SHFE aluminium contract may find certain support. Since the ROC, RSI and KDJ indicators were about to complete the death cross last Friday, if the most-traded SHFE aluminium contract falls below the MA5 moving average this week, the death cross will be completed and the weekly price correction will start. If supply concerns intensify further, the bulls may enter at around the MA10 moving average.
The pandemic-induced output cuts in Guangxi boosted aluminium prices last week, but the spot market performed poorly as most downstream producers have not yet resumed their production. The growth rate of domestic aluminium ingot social inventory may be higher than expected this week, putting pressure on aluminium prices. However, in the medium and long run, aluminium prices will still have upward momentum as the domestic and overseas aluminium supply is unlikely to recover significantly and downstream consumption will improve.
The most-traded SHFE aluminium contract is expected to move between 21,800-23,500 yuan/mt this week and LME aluminium between $3,100-3,400/mt. The spot prices in east China will maintain small spot discounts against the SHFE front-month aluminium contract.
