SMM Daily Review - 2011/7/4 Aluminum Market

On Monday, SHFE 1109 aluminum contract prices, the most actively-traded one, opened slightly higher at RMB 17,300/mt. After price consolidations, SHFE three-month aluminum prices edged up to test RMB 17,400/mt, but met strong resistance to move higher. Finally, the aluminum contract for three month delivery in the SHFE market closed at RMB 17,375/mt, up RMB 90/mt, or a gain of 0.52%. SHFE 1109 aluminum contract prices closed up for fifth consecutive day, but failed to rise above the high level seen in the previous trading day. Time is still needed for aluminum prices to climb above RMB 17,400/mt due to heavy resistance.

In the Shanghai spot market, mainstream traded prices were between RMB 17,450-17,490/mt, with premiums at positive RMB 30-40/mt over SHFE current-month aluminum contract. Spot aluminum prices gained nearly 1.3% in the morning business, as SHFE current-month aluminum prices rose all the way to stand at RMB 17,400/mt. Traders showed higher buying interest in view of limited goods held by cargo-holders, resulting in supply shortages. Aluminum prices in the SHFE market edged up in the afternoon, but spot aluminum prices moved around RMB 17,470/mt, with limited deals reported. Some cargo-holders were reluctant to move goods, resulting in quiet transactions.

According to a recent SMM survey, approximately 74% of market players are optimistic towards the outlook, while about 26% of players are neutral. The optimists believe that continuous declines in spot inventories, cargo-holders'strong unwillingness to move goods, easing cash flow pressure, and the need to replenish goods will also support higher aluminum prices. The neutralists believe that downstream buying interest is now depressed by the existing weak demand period, leaving price declines from highs possible.