SMM Daily Review of Aluminum Market

Following the plunge of LME aluminum prices last Friday, the most active SHFE September aluminum contract gapped lower at RMB 15,850/mt and ended down RMB 85/mt or 0.53% at RMB 15,865/mt on Monday. It slipped to RMB 15,800/mt in the beginning, but recovered some losses with the help of bargain hunting. Positions added 2,048 lots to 102,322 lots. LME was closed and SHFE aluminum tracked other futures and Chinese stocks. Though it showed more stability than other base metals contracts, SMM expects it to test support at RMB 15,800/mt in the near term in the face of short selling triggered by a sluggish macro economy and accelerating losses in copper prices.

Shanghai mainstream spot prices were RMB 15,890-15,910/mt. Domestic stocks and futures prices fell, despite resilience of SHFE aluminum, the macroeconomic situation downturn turned aluminum market bearishness strong. Shanghai goods holders retained strong selling interest, dragging spot aluminum below RMB 15,900/mt.

This week SMM surveyed 25 aluminum production and trade enterprises. Last week in Shanghai, spot aluminum was sold at an average RMB 15,970/mt. For this week’s aluminum price expectations, 10 see flatness, 15 see losses.

This week 10, or 40% respondents see flatness. They said spot aluminum price still has short-term support, including cost support. Starting from last Friday, Chalco lifted its alumina ex-works price to RMB 2,900/mt, while announcing its 3 alumina factories will cut 1.7 million mt/yr in capacity to support alumina prices. In early May, Indonesia raised bauxite tariff 20%, leading to increases in imported alumina prices, which will lead to higher aluminum prices. On the other hand, China successively adjusted and introduced looser industry policies, newly approved projects are coming online soon, which will stimulate consumption of aluminum ingot, so as to support aluminum prices, making it difficult to drop again. In addition, domestic aluminum businesses, such as large aluminum production and trade enterprise, will choose to collectively hold goods at lower prices, it can also prevent spot prices from falling further. The 10 respondents said aluminum prices can be maintained at RMB 15,900-16,000/mt.

For the short-term, the index still has high possibilities to stay high, thereby continuing to pressure LME aluminum prices to USD 1,972/mt, the 5-month low. The most active SHFE aluminum contract gapped lower and struggled at RMB 15,800/mt. The current-month contract also gapped lower, and managed to stabilize at RMB 15,890/mt.

For aluminum spot, its discounts over the current-month contract continued to weaken to RMB 10/mt. Above taken together, in the face of weak consumption and negative messages from overseas, spot aluminum prices can hardly find support and its overall trading range may slip below RMB 15,900/mt.