SMM Daily Review – 2011/8/8 Aluminum Market

Most active SHFE 1110 aluminum contract prices opened over 3% lower at RMB 16,985/mt on August 8th. During initial trading hours, most active SHFE aluminum contract prices kept falling and hit RMB 16,725/mt with an over 4% loss. However, after profit-making by the shorts, most active SHFE aluminum contract prices rebounded and hit a high of RMB 17,370/mt. In the afternoon, after prevailing short sentiment in stock and other metals markets forced capital to exit, most active SHFE aluminum contract prices finally closed at RMB 17,075/mt, down RMB 460/mt or 2.62%. Positions of most active SHFE aluminum contracts drastically fell by over 40,000 lots due to market panic, and most active SHFE aluminum contract prices are expected to fluctuate near RMB 17,000/mt before China’s July CPI is released on August 9th.

Trading prices of spot aluminum in Shanghai on August 8th were between RMB 17,820-17,850/mt, with premiums of positive RMB 240-260/mt over SHFE current-month aluminum prices. In the morning, SHFE current-month aluminum prices surged after opening lower, which boosted goods holder confidence within a short prevailing market, and spot premiums were kept around RMB 250/mt over SHFE current-month aluminum prices supported by unwillingness to sell. Drastically fluctuating aluminum prices led to cautious sentiment among consumers with purchases rarely reported. Overall market transactions were quite limited. In the afternoon, as SHFE current-month aluminum prices kept fluctuating, spot premiums remained at RMB 250/mt. Mainstream trading prices in the afternoon was RMB 17,700/mt. Overall market transactions were rare due to strong wait-and-see sentiment.

SMM weekly average aluminum ingot price during August 1st to 5th was RMB 18,429/mt, a new high since start of 2011, and up RMB 188/mt or 1.03% from previous week. A recent SMM survey the optimistic market expectations inverted during the past week, with 80% of market players expect aluminum prices to fall. Their reasons include spreading European debt crisis and escalating US debt woes due to a historical downgrade by Standard & Poor’s, which will lead to market worries towards a global economic recession. Meanwhile, inflation pressure is expected to remain high in China, and selling pressure for commodities is forming as a result of market panic. With large sum of long capital forced to exit in previous days, these market players therefore expect aluminum prices drop quickly in the short term.

The remaining 20% of market players are neutral towards future aluminum prices, which are supported by following reasons. Firstly, surging power and alumina costs will limit downward space of aluminum prices. Secondly, falling pace and space of aluminum price will also be limited by remaining low domestic inventories despite an overall bearish sentiment in the globe, as goods holders’ unwillingness to sell will push up spot premiums. Thirdly, as SHFE aluminum prices gradually stabilized at RMB 17,000/mt, the longs will actively increase positions, and profit-taking will also be active at this level, which will support aluminum prices to consolidate.