23 FEBRUARY 2016www.thehindubusinessline.com
Aluminium regains ground on MCX, Mumbai
Edited by : AL CIRCLE
4 min read
Aluminium prices surged 4 per cent last week, with the spot price on the London Metal Exchange (LME) closing on a stronger note at $1,562 per tonne on Friday. This is just above an important resistance at $1,560. The metal is up about 10 per cent from its low of $1,423 made in November 2015. Between May and November 2015, aluminium spot prices had plummeted over 27 per cent from a high of $1,959.
On the domestic front, the aluminium futures contract traded on the Multi Commodity Exchange (MCX) rose 5 per cent last week to close at INR107.65 per kg. This contract moves in tandem with the LME spot price. A weakening rupee, against the dollar, is providing additional support to the domestic futures contract.
Prices of most metals have been strengthening in the global markets due to the recent weakness in the US dollar. Dollar weakness usually boosts metal demand as it makes it cheaper for consuming countries to import. Aluminium had fallen through last year, due to China adding to the supply glut at a time when the global economy was struggling to grow.
Fundamentally, over the long term, one major factor that still offers hope for aluminium prices to revive is the expected increase in demand from the automobile sector. Reports suggest that in order to make vehicles more fuel-efficient, a key requirement is lower vehicle weight. Using aluminium helps in lightening up vehicles. With the global shift towards fuel conservation, the demand for aluminium from automakers could thus increase.
While the above factor will kick in over the long term, at the moment the market is still pressured due to the oversupply situation. For 2016, aluminium supply is also expected to increase by 3.2 million tonnes, which is a 5 per cent rise from 2015. So, the possibility of the metal reversing lower again cannot be ruled out. However, on the charts, there is no immediate and serious threat that suggests a sharp reversal in the price.
Medium-term view
The LME spot price made a low of $1,423 per tonne and has bounced higher from there. On the charts, the price action is suggesting the formation of a base by prices consolidating between $1,400 and $1,550. This consolidation is also happening above an important long-term trendline support which is poised around $1,450.
Last week, as the spot price closed just above an important resistance, if it sustains above this level, a further rise to $1,600 and $1,620 is possible. A further break above $1,620 will pave the way for the rally to extend to $1,680 and $1,700 over the medium term. But a reversal from $1,620 can trigger a corrective fall to $1,560 or even lower.
On the downside, $1,450-$1,400 is the significant support zone. The metal will come under renewed pressure only if it declines below $1,400. The next target will be $1,350. On the domestic front, the MCX-Aluminium contract has risen 11 per cent since November last year. The downtrend that had begun from the November 2014 high ( INR130.15) halted at a low of INR 93 in October last year. This is also a long-term trend support. The 21-week moving average at INR 100 and INR 97.5 are the important supports for the contract. The outlook will remain positive as long as the contract trades above these levels. Resistances are at INR 110 to INR 111 - the 50 per cent Fibonacci retracement level. A strong break above this can take the contract higher to INR 115 and INR117. The outlook will turn negative only if the contract declines below INR 97 decisively. Such a fall will increase the danger of it falling to INR 93- INR 92.
Short-term view
The sharp 2 per cent rally on Friday has taken the MCX-Aluminium contract above a near-term resistance of INR 106. However, the uptrend that had begun in November last year is approaching an important short-term resistance between INR 110 and INR 111. This resistance is likely to be tested now.
Whether the contract breaks above INR 111, or reverses lower, will decide the next leg of move. A strong break above INR 111 can take it higher to INR 113. But a reversal will increase the possibility of a corrective fall to INR 106 and INR 104 in the short term.
On the domestic front, the aluminium futures contract traded on the Multi Commodity Exchange (MCX) rose 5 per cent last week to close at INR107.65 per kg. This contract moves in tandem with the LME spot price. A weakening rupee, against the dollar, is providing additional support to the domestic futures contract.
Prices of most metals have been strengthening in the global markets due to the recent weakness in the US dollar. Dollar weakness usually boosts metal demand as it makes it cheaper for consuming countries to import. Aluminium had fallen through last year, due to China adding to the supply glut at a time when the global economy was struggling to grow.
Fundamentally, over the long term, one major factor that still offers hope for aluminium prices to revive is the expected increase in demand from the automobile sector. Reports suggest that in order to make vehicles more fuel-efficient, a key requirement is lower vehicle weight. Using aluminium helps in lightening up vehicles. With the global shift towards fuel conservation, the demand for aluminium from automakers could thus increase.
While the above factor will kick in over the long term, at the moment the market is still pressured due to the oversupply situation. For 2016, aluminium supply is also expected to increase by 3.2 million tonnes, which is a 5 per cent rise from 2015. So, the possibility of the metal reversing lower again cannot be ruled out. However, on the charts, there is no immediate and serious threat that suggests a sharp reversal in the price.
Medium-term view
The LME spot price made a low of $1,423 per tonne and has bounced higher from there. On the charts, the price action is suggesting the formation of a base by prices consolidating between $1,400 and $1,550. This consolidation is also happening above an important long-term trendline support which is poised around $1,450.
Last week, as the spot price closed just above an important resistance, if it sustains above this level, a further rise to $1,600 and $1,620 is possible. A further break above $1,620 will pave the way for the rally to extend to $1,680 and $1,700 over the medium term. But a reversal from $1,620 can trigger a corrective fall to $1,560 or even lower.
On the downside, $1,450-$1,400 is the significant support zone. The metal will come under renewed pressure only if it declines below $1,400. The next target will be $1,350. On the domestic front, the MCX-Aluminium contract has risen 11 per cent since November last year. The downtrend that had begun from the November 2014 high ( INR130.15) halted at a low of INR 93 in October last year. This is also a long-term trend support. The 21-week moving average at INR 100 and INR 97.5 are the important supports for the contract. The outlook will remain positive as long as the contract trades above these levels. Resistances are at INR 110 to INR 111 - the 50 per cent Fibonacci retracement level. A strong break above this can take the contract higher to INR 115 and INR117. The outlook will turn negative only if the contract declines below INR 97 decisively. Such a fall will increase the danger of it falling to INR 93- INR 92.
Short-term view
The sharp 2 per cent rally on Friday has taken the MCX-Aluminium contract above a near-term resistance of INR 106. However, the uptrend that had begun in November last year is approaching an important short-term resistance between INR 110 and INR 111. This resistance is likely to be tested now.
Whether the contract breaks above INR 111, or reverses lower, will decide the next leg of move. A strong break above INR 111 can take it higher to INR 113. But a reversal will increase the possibility of a corrective fall to INR 106 and INR 104 in the short term.
Unlock full access – sign up for FREE.
Key benefits
Find exclusive data-driven insights and in-depth analysis
Get our daily newsletter delivered straight to your inbox
Access real-time and historical price trends from global indices
Post and respond to latest business leads
Stay ahead with alerts on learning tools
...and so much more!SIGN UP / LOGIN
Previous article
Chinese driven aluminium overhang to foil price bulls
Next articleIceland's Landsvirkjun grows profit in 2015 despite aluminium price decline
Grow with
AL Circle
