The price channel has been broken

After months of being in a rut, China’s aluminium price has broken through the RMB11,000. On 16th February, the SHFE active price was RMB11,045.

Cuts to operating capacity are the primary driver. The production reduction in recent months was around 2mt. Plus the 1mt stockpiling plan in January. It gave a positive market sentiment.

Outside China, Rusal’s Q4 accumulated production was 878t, down 4% quarter on quarter. Rusal has no plan to restart its idled capacity and they are still considering to reduce the production with 200kt annually. Alcoa will permanently close its 269,000 metric ton Warrick Operations smelter in Evansville, Indiana by the end of the first quarter 2016. The RoW market is now slipping towards a net shortage situation. If that causes the LME to rise, Chinese exporters will be able to exploit the price spread.

Another factor was the domestic stock market, which posted some very positive days recently. The aluminium price went up along with equities. Decreases in inventory also help provide a boost to sentiment.

Now that factories in China are operating again following the CNY holiday, we will get a clearer indication of the direction for the market. Will the price break out hold?