SMM Daily Review – 2011/7/25 Aluminum Market

After LME aluminum prices gained a huge 2% on July 22nd, SHFE aluminum prices opened higher on July 25th at RMB 17,660/mt in response. Tight spot aluminum supply also pushed SHFE aluminum prices to test RMB 17,700/mt. However, after Shanghai Composite Index plunged by nearly 3%, all base metals except aluminum dipped. At the tail of trading, SHFE aluminum prices also fell and erased daily gains due to short selling. Finally closed price was RMB 17,590/mt, up RMB 5/mt or 0.03% from previous trading day. Total positions of most active SHFE aluminum contracts increased by 4,908 lots to 123,980 lots. Though most active SHFE aluminum contract prices fell below the 5-day moving average impacted by bearish sentiment in other metals markets, aluminum was the only base metal that gained on the SHFE market during the day, and SMM expects SHFE aluminum prices to test RMB 17,700/mt after short-term fluctuation.

Mainstream traded prices of spot aluminum in Shanghai on July 25th were between RMB 17,870-17,900/mt, with premiums of positive RMB 80-100/mt over SHFE current-month aluminum prices. In the morning, after SHFE current-month aluminum prices opened higher and struggled at RMB 17,800/mt, spot aluminum prices surged and hit RMB 17,900/mt. However, market transactions were limited due to strong unwillingness to sell among goods holders. In the afternoon, SHFE current-month aluminum prices continuously fluctuated and failed to break through RMB 17,800. As a result, spot aluminum prices fell slightly to RMB 17,860-17,870/mt. However, spot supply was scarce as goods holders were building up inventories due to optimism toward aluminum prices. Market transactions were rarely reported.

SMM weekly average aluminum ingot price is RMB 17,769/mt for the week from July 18th to 22nd, up RMB 212/mt or 1.21% from previous week. Concerning the price trend in the future, a recent SMM survey shows that 63% of market players are remain optimistic towards aluminum prices and expect aluminum prices to break through RMB 18,000/mt in the short term supported by tight supply. 33% of market players are neutral towards aluminum prices, believing tight capital supply and seasonal low demand will lead to weak downstream consumption which will be offset by tight supply. The remaining 4% of market players are pessimistic towards aluminum prices, believing sluggish world economy, plunging Chinese stock prices and selling pressure will drag down aluminum prices.