Spot aluminium discounts to widen at the end of the month in anticipation of supply growth: SMM

Shanghai Metals Market expects spot aluminium discounts across Chinese markets to widen at the end of December as new capacity, pledged cargoes, and stockpiles across producers are likely to grow supplies to the markets.

According to SMM assessments, the A00 aluminium prices have been flat with the SHFE December contract for four consecutive trading days as of Wednesday, December 12. Limited supplies across the markets accounted for the recent strength in spot prices.

Recently, several big traders made large purchases at higher price, which in turn, depleted supplies across the spot markets and pushed up prices.

In the meantime, social warehouses saw fewer arrivals. SMM data showed that primary aluminium inventories across major consumption areas in China recorded a decline by some 150,000 tonnes between November 12 and December 10. Newly capacity is expected to grow shipments that go to social warehouses.

Now towards the end of the year, tight cash flows forced some traders to pledge their inventories of primary aluminium for a loan. The tightened supplies are available in the market and they are expected to return to the market after a new year starts when cash issues would ease.

Cash flow issues, however, might prompt aluminium producers to pour their stockpiles into the market. After aluminium prices fell below 14,000 yuan/mt in March, some producers stockpiled cargoes in anticipation of gains in prices. However, continued weakness in prices resisted those materials from entering the spot markets.