SMM Daily Review - 2011/10/18 Aluminum Market

The most active SHFE 1112 aluminum contract gapped lower at RMB 16,570/mt on October 18th after Germany denied a final solution deadline for the euro zone debt crisis. Due to strong short selling, the contract plunged over 2% to RMB 16,320/mt after its opening, and narrowed losses with profit-taking by the shorts in the afternoon to finally close at RMB 16,400/mt, down RMB 285/mt or 1.71% from previous trading day. Positions of the contract increased 2,164 lots to 94,396 lots. Transactions during the day broke through 50,000 lots for the first time following the National Day holiday due to strong short selling. With a bearish economic outlook, the most active SHFE aluminum contract is expected to stay below RMB 16,500/mt in the short term.

Mainstream traded prices of spot aluminum in Shanghai were between RMB 16,530-16,560/mt on October 18th, with premiums of RMB 50-80/mt over the SHFE current-month aluminum price.

In the morning, after SHFE aluminum prices plunged nearly 2%, spot aluminum prices dropped to near RMB 16,500/mt. The selling interest also cooled among goods holders. Despite this drop, downstream buyers stayed on the sidelines. Spot premiums over the current-month aluminum contract only fluctuated near RMB 50/mt following a change in month. That compared with surges in premiums during previous changes in month. Only middlemen were actively inquiring at lower prices, but transactions were quite limited.

In the afternoon, as market players expected only a slight dip in aluminum prices after SHFE aluminum prices narrowed losses, some middlemen stocked up at lower prices. However, most goods holders were still standing on the sidelines. The sparse quotations in the afternoon were between RMB 16,540-16,560/mt, at zero premiums over the SHFE current-month aluminum prices. Market transactions were rarely seen due to limited market supply and weak demand.