Aluminium declines as the dollar strengthens, yet supply tightness lingers

After slipping by 1.1 per cent, the aluminium prices settled at INR 346.1, which is influenced by a stronger US dollar, with the future hope for further interest rate cuts from the Federal Reserve seeming to be fading.

Irrespective of the dip, aluminium prices were supported throughout the week, mainly because of the ongoing shipping disruptions linked to tensions in the Middle East. This has raised serious concerns about supply risks in global metal markets.

On the supply side, the indicators show that the London Metal Exchange (LME) aluminium inventories dropped to 445,300 tonnes, hitting the lowest point since July. On the other hand, the cash contract was trading at a USD 29 per tonne backwardation compared to the three-month contract, suggesting that near-term supply conditions are quite tight.

Also read: NBS: China's primary aluminium output rises 3 per cent Y-o-Y during Jan-Feb

At the Shanghai Futures Exchange, the stocks rose by 5.6 per cent to 416,425 tonnes, reaching their highest level since April 2020, indicating relatively comfortable supply conditions in China.

Concentrating on the production, Norsk Hydro’s Qatalum smelter will continue operating at 60 per cent capacity following last week’s shutdown announcement, while Century Aluminum expects to restart operations at its Grundartangi smelter in Iceland by the end of April.

According to the International Aluminium Institute (IAI), worldwide primary aluminium production reached 6.317 million tonnes in January, up from 6.239 million tonnes a year earlier.

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Meanwhile, China’s production maintained its steady expansion, reaching a record 3.87 million tonnes in December, reflecting a 2.9 per cent year-on-year increase.

From a technical perspective, the market is currently experiencing a long liquidation phase, which is evident from an 8.48 per cent drop in open interest down to 2,957 lots, along with a price decrease of INR 3.85.

Immediate support is set at INR 344.3 and if this level is broken, the market will witness the prices sliding down to INR 342.3.

On the flip side, resistance is expected around INR 349.1 and if prices push past this point, analysts might test INR 351.9.

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