SMM Daily Review - 2011/8/1 Base Metals Market

Most active SHFE 1110 aluminum contract prices opened higher at RMB 18,410/mt on August 1st. In the morning, strong long momentum pushed SHFE 1110 aluminum contract prices to RMB 18,645/mt, a new high since last Thursday’s RMB 18,570/mt. Later released weakening PMI data of China boosted short confidence, which led SHFE 1110 aluminum contract prices to struggle at RMB 18,500/mt. Finally closed price was RMB 18,535/mt, up 1.31%. SHFE aluminum again became the best choice for investors and led base metals to gain, with positions of most active SHFE aluminum contracts drastically increasing by over 20,000 lots. SMM expects active investor sentiment will push SHFE 1110 aluminum contract prices to test RMB 19,000/mt in the short term.

Morning traded prices of spot aluminum in Shanghai on Aug. 1st were between RMB 18,570-18,600/mt, with discounts of negative RMB 30-0/mt over SHFE current-month aluminum prices. In the morning, falling SHFE aluminum prices limited upward space of spot aluminum prices which are expected to fluctuate in the short term. As a result, cautious sentiment among purchasers led to slight discounts of spot aluminum prices, and only a few transactions at lower prices were reported. In the afternoon, SHFE current-month aluminum prices narrowly fluctuated above RMB 18,550/mt, and spot aluminum prices followed to rise with almost zero discounts. Mainstream traded prices in the afternoon were between RMB 18,560-18,600/mt. Market transactions were rarely reported due to strong wait-and-see sentiment.

SMM weekly average aluminum ingot price during the week from July 25th - July 29th was RMB 18,241/mt, up RMB 472/mt or 2.66% from previous week. According to a recent SMM survey, despite falling aluminum prices on July 29th, 52% of market players remained optimistic towards future aluminum prices. This was supported by rising SHFE aluminum prices and higher closed prices on August 1st, which indicates that upward space exists. With lower spot aluminum inventories and improved purchasing interest among downstream buyers at the beginning of August, these market players expect aluminum prices to continuously rise and test RMB 19,000/mt.

38% of market players are neutral towards future aluminum prices, believing aluminum prices will fluctuate as selling pressure will offset capital support, and seasonal low-demand and slightly excessive supply will also counterweigh low inventories. The remaining 10% of market players are pessimistic towards future aluminum prices, as low buying interest at high prices and seasonal low order volumes among downstream buyers will lead to extremely limited purchases. Further more, longs may exit the market at any time, and aluminum prices will fall as a result.