Aluminium jumps 9% in Jan-Aug; investors should maintain long positions

<p>After a dismissal performance last year, aluminium managed to gain around 9 percent in the first eight months. The increase in demand is attributed by two factors, demand in China and demand from automobile industry. Sharp fall in inventories has also been blessing for aluminium.<br /><br />Inventories in Shanghai Future Exchange are lowest since 2011 and in London Metal Exchange (LME), the inventories is down nearly 18 per cent. This is because last year to support the falling prices, many aluminium smelters in China were closed down. According to a leading website on metal industry, from January to June 2016, China&rsquo;s total refined aluminium output was 15.11 million tonnes, virtually flat on the same period last year. With production restarts continuing and new capacity being added, refined aluminium production is expected to continue accelerating into the second half of 2016. This may put pressure on the prices of aluminium. Norsk Hydro, one of Europe&rsquo;s largest producers, insists that a surplus of up to 1.5 m tonnes of aluminium in China this year will be offset by a deficit elsewhere in the world and steady demand.<br /><br /><img style="vertical-align: middle; display: block; margin-left: auto; margin-right: auto;" src="http://www.alcircle.com/uploads/images/part-6-inventory.png" alt="News" width="660" height="470" /><br /><br />China is also dumping aluminium into India (which is seeing uptick in demand) at cheaper prices. This is because their government is giving subsidies on power and logistic. Norsk expects a 13 per cent growth in demand from the car industry to average 13 per cent a year until 2023. Aluminium use in auto industry is gaining traction in India, US and Europe. This is because aluminium is increasingly being used to build light cars in order to meet carbon emissions standards. The demand for aluminium is increasing in India from auto industry. Many Indian auto companies are exploring possibilities to develop light weight, energy efficient cars.<br /><br />In MCX, aluminium has created rising wedge pattern. Its next resistance comes at INR113 and looking at the current rally, it seems aluminium will try to test the resistance of INR113-Rs 114 per kg. Aluminium is one of the metals this year that failed to rally despite other base metals like zinc, lead and nickel rallying more than 30 &ndash; 40 per cent. Some amount of buying is expected as investors may catch up with this base metal. If Aluminium closes above INR114, it may further rally till INR118. Now its support is at INR108. Analysts' recommendation is to maintain long position in Aluminium with stop loss of INR108. Breaking below INR108, aluminium may tumble till INR103. It needs to break above the resistance zone of INR113-Rs 114 to trigger further buying.</p>