About 44% of Chinese aluminium smelters expect aluminium prices to stabilize this week

About 44 per cent of the 23 Chinese aluminium smelters surveyed by SMM expect aluminium prices to stabilize this week.

Those neutral players see SHFE 1607 aluminium at RMB 12,300-12,500/mt and LME aluminium at USD 1,570-1,610/mt, citing several reasons. First, the price spread between SHFE 1605 and 1606 aluminium contracts continued expanding, which will dampen buying interest and limit upside room in spot prices. Small spot discounts will offer support to SHFE aluminium . Second, aluminium stocks in China’s five major markets continued falling, albeit at a slower pace. Third, longs might take profit at highs but will also enter after at lows.

Another 30 per cent see SHFE 1607 aluminium rising above RMB 12,300/mt and LME aluminium breaking through USD 1,610/mt. First, disappointing US April non-farm payrolls will dampen expectations for rate hike in June. Second, aluminium smelters have little intention of opening short positions on the SHFE for hedging purpose at current price level. Third, recent price downward corrections will dampen passion for aluminium capacity restarts. Fourth, aluminium stocks in China’s five major markets fell steadily. Spot discounts were small at RMB 10-0/mt over SHFE 1605 aluminium. Strong market fundamentals will offer momentum to prices.

The rest 26 per cent are bearish that SHFE 1607 aluminium will fall below RMB 12,000/mt and LME aluminium will fall below USD 1,570/mt. First, a strong dollar will pressure base metals. Second, falling ferrous metals prices will trigger risk aversion sentiment. Third, some downstream producers will prefer scrap aluminium over primary aluminium against big price spread between the two. Fourth, high SHFE/LME aluminium price ratio will be unfavourable for exports, which will add to supply in domestic market.