SMM Aluminum Price Forecast (Sept. 5-9)

SHFE 1111 aluminum contract prices rose near the 5-day moving average last week, with low-end prices testing RMB 17,450/mt. Daily trading volumes were below 40,000 lots due to tight cash flows at month’s end, while intraday short-term speculative transactions caused positions to fall steadily. Power supply shortages became severe in south China, and spot aluminum inventories grew slowly, with positive market fundamentals helping support SHFE aluminum prices to resist declines. However, tightening cash flows at month’s end depressed buying interest, and high inflation in China resulted in sluggish domestic stock markets, both dampening upward momentum in SHFE aluminum prices. In general, SHFE aluminum prices fluctuated in a narrow band recently amid struggles between long and short momentum.

Month-end settlements tightened bank credit last week, which, when combined with China’s central bank’s widening of the reserve requirement, underscored that the liquidity crunch is unlikely to let up in 2H. This further damped already seasonally weak spot aluminum consumption. Spot premiums over SHFE current-month aluminum prices plunged from RMB 170/mt to near RMB 50/mt. Earlier during the week, cargo-holders actively lowered quotations in hopes of liquidating to cash, but failed to stoke buyer interest. Mainstream trading prices stayed below RMB 17,800/mt. Entering September, declining financing pressures, combined with optimism towards future aluminum price trends, will lead to lower interest for selling at lower prices among goods holders. Although there was no noticeable uptick in consumption, mainstream spot quotes were again headed north of RMB 17,800/mt despite limited transaction volume in the market.