42% of Chinese aluminium smelters expect prices to stabilize this week

About 42% of the 34 Chinese aluminium smelters surveyed by SMM expect aluminium prices to stabilize this week.

These market players expect SHFE 1603 aluminium to consolidate. On the one hand, smelters will open short positions for hedging purpose after SHFE aluminium rise, which will put downward pressure on prices. On the other hand, short selling eased after SHFE aluminium touched the 20-day moving average. With a lack of positive or negative news, both longs and shorts will stay cautious.

Another 29% are optimistic that LME aluminium will rise above USD 1,490/mt and SHFE 1603 aluminium will climb above RMB 10,900/mt, citing a series of positive factors. 1. More smelters have cut production, and new capacity is delayed from coming online; 2. Alumina producers cut output in response to aluminium capacity cuts, which will support alumina prices, in turn offering cost support to aluminium prices; 3. Tight supply in spot market will trigger a short squeeze on SHFE 1601 aluminium; 4. Spot discounts in domestic spot market narrowed to RMB 130/mt, suggesting tightness in spot market. Strong SHFE aluminium will push LME aluminium up.

The rest 29% are bearish that LME aluminium will fall below USD 1,470/mt and that SHFE 1603 aluminium will drop below RMB 10,700/mt, citing a series of negative factors: 1. Downstream consumption will cool as the off-season sets in; 2. Power tariff subsidies in some provinces will reduce power costs for aluminium smelters, weakening cost support for aluminium prices; 3. Tumbling Chinese A-share market will dampen market sentiment; 4. Yuan’s sharp depreciation and a strong US dollar will weigh on LME aluminium.