Outside China there’s still a lot of aluminium, so any price rise will be jittery

July has seen LME aluminium prices rising above US$1,900 per tonne breaking the downtrend that was conspicuous in May. But, the one-week journey from US$1,908 per tonne to US$1,925.50 per tonne was not free of jitters. The light metal contract touched an intra-week low of US$1,903 per tonne on July 4 and again rebounded to around US$1,915 per tonne. The climax was reached on Thursday, July 6, when LME aluminium shot up to US$1,948 per tonne- the highest since May 30.

The price surge was nothing but a pent-up reaction burst to the news of aluminium capacity cuts in the top producing country China. However, the uptrend lost the momentum soon.  LME aluminium dipped during early Asian trading hours on Friday, July 7, hit by profit taking and by signs that supply is still robust elsewhere.

"We've always been biased towards the China capacity cuts story, but near term there's loads of aluminium hanging around. There's been a big rise in Chinese exports and premiums are beginning to be depressed around the world," observed Macquarie analyst Vivienne Lloyd.

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As surveyed by Shanghai Metals Market, aluminium ingot stocks in China’s five major markets grew as much as 20,000 tonnes as of July 6 from a week ago. Total stocks estimated were 1.22 million tonnes, including 264,000 tonnes in Shanghai, 490,000 tonnes in Wuxi, 89,000 tonnes in Hangzhou, 79,000 tonnes in Gongyi and 296,000 tonnes in Nanhai.

Reuters’ technical analysis suggests that LME aluminium may test a resistance at US$1,951 per tonne, a break above which could lead to a gain to the next resistance at US$1,964.