79% of Chinese aluminium smelters bullish toward aluminium prices this week

Almost 79% of the 34 Chinese aluminium smelters surveyed by SMM are bullish toward this week’s aluminium prices. The rest 21% expect prices to stabilize.

The optimists expect LME aluminium to rise above USD 1,520/mt and SHFE 1603 aluminium to climb above RMB 10,800/mt. Aluminium capacity cuts in China have exceeded 4 million mt/yr since the beginning of this year, which is more than the amount of new capacity. Such huge cuts have allowed aluminium stocks in China’s five major trading markets to fall below 800,000 mt. Spot discounts in China thus narrowed to less than RMB 100/mt over SHFE 1601 aluminium. SHFE aluminium kepti rising, forcing shorts to exit. This in turn pushed SHFE aluminium above the 60-day moving average. Technical side is positive for SHFE aluminium. Negative impact from US Fed’s rate hike has been almost digested, giving some relief to LME aluminium.

The rest see SHFE 1603 aluminium moving at RMB 10,600-10,800/mt and LME aluminium at USD 1,500-1,520/mt. They expect some longs to exit after SHFE aluminium rise above RMB 10,800/mt, citing falling aluminium costs from lower alumina prices and power tariff subsidy. Besides, some traders will suspend business for this year as year’s end. This, together with poor downstream consumption, will prevent prices from rising. Production cuts in China will give shorts no reason to enter, so aluminium prices are unlikely to fall, either. The downward pressure on LME aluminium from a strong US dollar will weaken now that the US Fed has announced rate hike.