SMM Weekly Review and Forecast (Jul. 25-29)

Last week, aluminum was the best performer in base metal markets, with SHFE and spot aluminum prices climbing driven up by a flood of speculative funds, and with SMMI.Al soaring by nearly 4%.

Last week, SHFE aluminum prices surged after temporarily fluctuating at the 5-day moving average. Driven up by a flood of speculative funds, SHFE aluminum prices shrugged off bearish economic conditions and have risen for 3 successive days, with most active SHFE aluminum contract prices further climbing after breaking through RMB 18,000/mt despite stronger selling pressure. However, resistance turned stronger again at RMB 18,600/mt. As the longs exited the market after profit-making, most active SHFE aluminum contract prices fell, but still found strong support at the moving averages. SMM expects aluminum prices to keep rising after fluctuating in the short term.

Spot aluminum prices advanced in response to higher SHFE aluminum prices. Premiums for spot aluminum over SHFE current-month aluminum contract prices remained firm near RMB 100/mt, with SMM aluminum prices rising from below RMB 17,900/mt, to RMB 18,650/mt, up 4.66% over the first four trading days of last week. Cargo-holders remained optimistic toward aluminum prices. Their unwillingness to sell goods caused aluminum prices at month-end to increase significantly despite the current seasonal low-demand period. But transactions were sparse, especially over the last two trading days of July, when no deals were closed due to high aluminum prices and tight cash flows despite the fact that cargo-holders showed higher interest in moving goods for cash at the higher prices.