29% of Chinese smelters bearish toward aluminium prices this week, SMM survey

About 29% of the 34 Chinese aluminium smelters surveyed by SMM are bearish toward this week’s aluminium prices.

Those pessimists fear that LME aluminium will fall below USD 1,480/mt and that SHFE 1603 aluminium will drop below RMB 10,600/mt, citing a series of negative factors: 1. Downstream consumption will cool as the off-season sets in, which will widen spot discounts; 2. Alumina prices kept falling, weakening cost support for aluminium ; 3. Power tariff subsidies in Xinjiang, Gansu, Yunnan and Sichuan will reduce power costs for aluminium smelters; 4. The price spread between SHFE 1601 and 1602 aluminium contracts widened to near RMB 300/mt due to nearing delivery date. This will force cargo holders to sell at larger discount.

Another 29% are optimistic that LME aluminium will rise above USD 1,510/mt and SHFE 1603 aluminium will climb above RMB 10,800/mt, citing a series of positive factors. 1. Aluminium stocks in China’s five major trading markets will continue falling as more smelters will cut production; 2. Tightening supply in spot market will trigger a short squeeze on SHFE 1601 aluminium ; 3. New aluminium capacity in northwest China will not be commissioned on a large scale. The rest 42% see SHFE 1603 aluminium stabilizing at RMB 10,600-10,800/mt and LME aluminium stable at USD 1,480-1,510/mt, due to the following reasons: 1. SHFE aluminium has found support at the 20-day moving average, and shorts will exit once prices fall to near RMB 10,600/mt; 2. Some aluminium smelters will open short positions for hedging purpose once SHFE aluminium rise above RMB 10,800/mt; 3. Despite tumbling Chinese A-share market, aluminium prices will face upward correction after falling sharply.