The recent price of aluminum has consolidated around 14,000 yuan/ton, but with a lack of clear direction, resulting in significant differences in market sentiment.Bears presently outweigh bulls, but traders do not need to be too pessimistic.
On the cost side, after the Spring Festival although China’s alumina prices have dropped more than 100 yuan/ton, the pre-bake anode, fluoride and other related materials prices continue to rise. Meanwhile coal prices are strong, especially Bohai Sea thermal coal. The coal index has been rising for two consecutive weeks, and Shaanxi, Shanxi and other coal-producing provinces also rose significantly. As of the end of February, China’s average cost of electrolytic aluminum smelting is still around 13750 yuan/ton, meaning the market price is barely above the costs. The strong costs will tend to support aluminum prices.
Environmental protection activities will also help to support aluminum prices. See our story from earlier today about the Linfeng smelter in Henan province. Although individual cuts amount to almost nothing in market terms, the ongoing uncertainty about further closures will support forward prices.
From the transport point of view, the Xinjiang area is still laboring under the pressure of a shortage of rail cars and congestion on the rail lines. There is a lot of aluminum sitting at the railway stations, and smelters there are now holding metal back, and this will add pressure to the price. We expect demand to remain robust, meaning inventory levels will likely fall, and that will also support the price.
In summary, I believe that the current market price of electrolytic aluminum is well supported, and traders should not be too pessimistic.