MCX aluminium outlook: Aluminium futures contract rises to INR 111.3 in Feb

Aluminium price has recovered strongly from its six-year low. The aluminium spot price on the London Metal Exchange (LME) fell to a six-year low of $1,423 per tonne in November 2015.

The metal price has surged about 13 per cent from this low to the current levels of $1,604 per tonne. The strong economic data from the US has brought about a change in sentiment. Also, increased hopes for further stimulus announcements from China, the world’s largest consumer of this metal, is also providing support to the recent rally in aluminium price.

On the domestic front, the aluminium futures contract traded on the Multi Commodity Exchange (MCX) has also risen sharply from its multi-year low of INR 93 per kg recorded in October 2015. The contract rose to a high of INR 111.3 in February and has come off slightly from there. It is currently trading near INR 107.

The broader outlook is positive and provides a good opportunity for short-term traders to go long in this contract.

Short-term view

The outlook is bullish. The recent pull-back from the high of INR 111.3 made on February 29 found support at the 21-day moving average, currently at INR 105.6. Significant short-term support is available near INR 105 and INR 104.70 - the 61.8 per cent Fibonacci retracement level. These supports are likely to limit the downside in the contract over the near-term.

Resistance is at INR 110 which is likely to be tested in the near-term. A strong break above this hurdle can take the MCX-Aluminium contract to INR 115 in the short-term. Traders with a short-term perspective can go long. Stop-loss can be kept at INR103 for the target of INR 114.

The short-term outlook will turn negative if the contract declines below INR 105. Such a break will bring in fresh selling pressure and drag the contract lower to INR 103 initially. Further break below INR 103 can take it lower to INR 101.

Medium-term view

The MCX-aluminium contract has been in a strong uptrend from its multi-year low of INR 93 recorded in October 2015. This uptrend remains intact with a strong support in the INR 102-100 zone. As long as the contract trades above INR100, the uptrend that had begun from the low of INR 93 will remain intact.

A rise to INR 115 is then possible. Further break above INR 115 will take the contract higher to INR 118. These levels of INR 115 and INR 118 are important medium-term resistances for the contract. Inability to break above these resistances can trigger a corrective fall to INR 110 and INR108 over the medium-term.