China's aluminium prices attain stability due to a spike in Yunnan’s production rate

Aluminium prices experienced a slight decline of 0.05 per cent yesterday, settling at US$202.15 per tonne due to heightened supply in Yunnan. This development may lead to a gradual emergence of supply pressure.

The northern region faced floods and other factors during the week, resulting in fewer aluminium ingot arrivals and a decrease in aluminium social stocks. Nevertheless, there are indications that more favourable policies to boost demand may be announced in China in the upcoming days.

These policies have already boosted real estate, automobiles, and other related consumption. However, the resumption of aluminium production in Yunnan is accelerating, and some major smelters in the region are expected to produce at full capacity by the end of August, potentially leading to a record high in total domestic operating capacity.

Notably, the amount of resumed production is mainly liquid aluminium, and there is no indication of considerable aluminium ingot oversupply pressure. The premium for aluminium shipments to Japanese buyers from July to September remained at U$127.50 per tonne, similar to the previous quarter's haul. This is due to local demand remaining sluggish with ample stocks. According to Marubeni, aluminium stocks at three major Japanese ports were at 357,490 tonnes nearing the end of June, which is above the basis level of 250,000-300,000 tonnes considered appropriate.

From a technical perspective, the market is currently experiencing fresh selling, with a gain in open interest by 4.64 per cent. Aluminium is receiving support at US$201.5 per tonne, and a drop below this level could see a test of US$200.60 per tonne levels. Resistance will likely be seen at US$203 per tonne, with a probable influx of prices approaching US$203.60 per tonne during the testing phase.