About 57% of Chinese aluminium smelters expect aluminium prices to stabilize this week

About 57 per cent of the 46 Chinese aluminium smelters surveyed by SMM expect aluminium prices to stabilize this week.

Those neutral players see SHFE 1607 aluminium at RMB 12,600-12,850/mt and LME aluminium at USD 1,650-1,670/mt, citing several reasons. First, the price spread between SHFE 1606 and 1605 aluminium contracts expanded to RMB 25/mt. This left suppliers eager to sell, while downstream producers refrained from buying at higher prices, limiting upside room in spot prices. Spot discounts did not expand, offering support to SHFE aluminium. Second, some longs took profit last week, and the rest longs will probably take profit as well if SHFE aluminium rises to higher levels again. SHFE 1607 aluminium will meet strong resistance at RMB 12,850/mt. On the other hand, long buying was reported after SHFE 1607 aluminium fell to near the 10-day moving average, leaving little room for declines.

Another 39 per cent see SHFE 1607 aluminium rising to RMB 13,000/mt and LME aluminium breaking through USD 1,686/mt. First, the US dollar will be soft due to low possibility of US rate hike in June. Second, negotiations between aluminium smelters and power plants over preferential power tariffs still drag on. Some smelters expressed concerns that this year’s preferential power tariffs may be higher than last year. This, plus rising alumina prices, will add to aluminium costs. Third, rising costs will slow pace of aluminium capacity restarts and new capacity release. Fourth, aluminium stocks in China’s five major markets fell about 40,000-50,000 mt each week on average, and are likely to fall to over 600,000 mt this week.

The rest 4 per cent are bearish that SHFE 1607 aluminium will fall below the 10-day moving average and LME aluminium will fall below USD 1,650/mt. First, pullback in ferrous metals prices will drag SHFE aluminium down. Second, SHFE distant month aluminium contracts are performing not as well as SHFE near month aluminium contracts, and the price spread is expanding. This will trigger selloffs in SHFE distant month aluminium contracts. Third, the SHFE is likely to approve more aluminium ingots as delivery brands, which will give shorts reasons to enter the market.