BLACK CHINA BLOG

28
February

Outlook for aluminium prices this coming week

By: Monte Zhang | Comments: 0 | Category: Aluminium

Aluminum prices rose then fell last week, and the overall focus will move down.

The dominant contract of SHFE reached RMB14,375 on Tuesday; then the speculative fund started to be sold, causing panic selling. It reached 13,505 on Friday, the lowest in this week. The LME aluminum price is more stable than the Chinese aluminum price. It is about USD1900 per ton, a narrow consolidation with a small fluctuation.

Now, from the supply side: as the chart shows below, the inventory of domestic spot market continued increasing until yesterday, but it had a slower speed than last week. It increased by 74.7KT , 52.8kt more than the same period last year. In addition, the inventory of the factories and railway stations in Xinjiang is about 324KT at present, 24 KT less than last week, and it will continue dropping slowly.  But the overall inventory is more than 300KT, a time bomb to the aluminum price; once that metal enters the market, it will be a strong pressure to the aluminum price.

unit:KT

district 2016-2-27 2017-2-20 2017-2-27
Shanghai 307 195 208
Nanhai 187 207 241
Wuxi 302 306 342
Hangzhou 64 72 75
Gongyi 41 99.1 87.8
Total 901 879.1 953.8

Demand side: Influenced by the environmental inspections, small and medium-sized aluminum processing factories are reorganizing to different degrees around China. The processing factories in Sihui, Huadu and Zhaoqing which are in Guandong Province are forced to stop working. Parts of aluminum bar factories in Wucaiwan, Xinjiang are ordered to stop, with the idling as long as about two months. The rate of operation also drops in Beijing-Tianjin-Hebei Region and surrounding areas. Although the market will enter a peak demand season in spring,  environmental factors could hamper demand growth.

News side: From China’s perspective, the National People’s Congress and CPPCC (Chinese People’s Political Consultative Conference) will be held in the next week. It is predicted that more measures in the macro economic regulatory field will come one after another, and the market will wait to be guided. From the international perspective, the PMI data of the manufacturing enterprises in Eurozone is better than expected, while the PMI of US Market is lower than the predicted value, bringing certain pressure to US dollar index, but the FED’s pointing to raising interest rates supported the US dollar. In addition, the market needs the further clarity on the policies and plans made by President Trump. Owing to the bull-and-bear factors, it is predicted that the aluminum price of LME will maintain a narrow consolidation, and it will have a small fluctuation.

In conclusion, the market will be faced with some uncertainties in the next week. The price’s influence which is exerted by the supply and demand fundamentals will weaken. It is predicted that the aluminum price may rise and then fall in the next week. The dominant contract of SHFE will be at RMB13,700-14,300 per ton; LME will maintain US1900 per ton in the first-line consolidation, and it will not make a breakthrough.

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