Last week was the first week after Spring Festival. SHFE aluminum’s main contract is supported strongly around ￥13,500 per ton; while the overall LME aluminum price was above the average, and it has a larger bounce than the Shanghai aluminum price.
At present, from the supply side, the output of electrolytic aluminum during Spring Festival was around 700,000 tons according to the capacity of 37 million tons in China. Owing to the holidays of many aluminum bar factories, the direct selling of aluminum liquid drops to around 50%. If so, the output of casting ingots was around 350,000 tons, but there was only 165,000 tons delivered to the spot market, and most of the remainder stayed at smelters and railway stations. At present, there are only about 260 train sets in Xinjiang, and the backlog of ingots are more than 350,000 tons until now. Although the shadow inventory makes a breakthrough of 1.1 million tons, the amount of the truly delivered ingots only maintains at 700,000 tons, the reported inventory does not cause any stress to the supply side.
From the demand side, some large and medium aluminum factories did not have any days off during Spring Festival, meaning they worked through their raw materials without being able to buy replacement material until the market re-opened. Now they are actively purchasing aluminum ingots. In addition, according to my investigation, most of temporary shut-down small factories said that they would resume production after the 15th of the first month of the lunar calendar (Lantern Festival) after Spring Festival. It is also to say that the aluminum market starts to boost and makes a good deal at the time that people return to work after Spring Festival.
From the macro news side, at the beginning of 2017, there were many proposals and briefings of national-level “electrolytic aluminum supply-side structural reforms”, “environmental inspection de-capacity”, and large amounts of speculative funds seized this opportunity to hype, leading the aluminum price to rise. While in international markets, the first two copper mines in global scale met with strikes and export sanctions in succession, worrying the short supply of copper market. Copper, as a “weathervane” of non-ferrous metals, whose sharply rising price drove the price of other related metals up, such as the metals represented by aluminum.
In conclusion, although it is the slack season after Spring Festival, a large drop of aluminum prices will not occur, influenced by many factors. In consideration of those factors simmering, the aluminum price will continue strong in the next week. It is anticipated that SHFE aluminum price main contract will be strong at RMB 13,500-14,200 per ton; and LME aluminum price will be USD1,830-1,900 per ton, but does not exclude the possibility of the breakthrough of USD1,900 per ton.
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