About 48% of Chinese aluminium smelters bullish over prices this week

About 48 per cent of the 42 Chinese aluminium smelters surveyed by SMM expect aluminium prices to rise this week.

Those optimists see SHFE 1605 aluminium rising above RMB 11,500/mt and LME aluminium advancing above the 40-day moving average to USD 1,535-1,560/mt, citing positive factors. First, European and US economic recovery will cheer market up. A series of economic data from the euro zone, the UK and Germany are expected to be positive in March, and US exiting and new home sales were also upbeat in February. Second, it will become more difficult for Chinese aluminium smelters to get loans amid China’s supply-side reform in industries plagued by severe overcapacity. This will speed up retirement of outdated smelters and slow commissioning of new capacity and restarts of idled capacity. Third, rising alumina prices are beginning to be reflected in aluminium costs. Aluminium smelters in southwest China raised prices on Monday. Fourth, falling aluminium stocks in China’s major markets will push up spot prices. Fifth, SHFE aluminium has been rising for four days in a row and looks set for more gains on positive technical side.

Another 33 per cent see SHFE 1605 aluminium stabilizing at RMB 11,350-11,500/mt and LME aluminium stabilizing at USD 1,510-1,530/mt. Weak LME aluminium will deprive SHFE aluminium of upward momentum. SHFE aluminium fell back after hitting RMB 11,500/mt, indicating a lack of market confidence. But the most active contract has found support at RMB 11,380/mt thanks to dip buying.

The rest 19 per cent are worried that SHFE 1605 aluminium will fall below the 20-day moving average to RMB 11,200-11,350/mt and LME aluminium will fall below USD 1,500/mt. First, production at aluminium alloy producers is recovering slower than last year, so consumption will not be as strong as expected. Second, Shandong Weiqiao Aluminium plans to expand aluminium capacity from 5.19 million mt at the end of 2015 to 6 million mt in 2016 in response to rising aluminium prices. Chalco (Guizhou) plans to put online 500,000 mt/yr aluminium project in Guizhou this year. Market is concerned whether aluminium capacity will be restarted at a faster pace. Spot discounts in domestic market expanded. Sellers were eager to sell, while downstream buyers turned away from high prices.