OfBusiness Aluminium Dailies | 19th July 2023

Price

• LME opened at $2246.86/MT on Tuesday and closed at $2198.28/MT.
• As of Tuesday, SHFE opened at 18,210 Yuan/MT and closed at 18,250 Yuan/MT.
• As of Tuesday, MCX Aluminium prices opened at Rs. 199.6/kg and closed at Rs. 197.3/kg.

Demand and Supply

• During the overnight trading session, the SHFE 2308 aluminium contract opened at 18,155 Yuan/MT, with its lowest point recorded at 18120 Yuan/MT and the highest at 18,235 Yuan/MT, eventually closing down by 0.11% at 18,230 Yuan/MT. On the other hand, the LME aluminium opened at $2255/MT on Tuesday, reaching its low at $2201/MT and its high at $2262/MT before closing with a decrease of 2.28% at $2205.5/MT.
• Regarding macroeconomic factors, the market has largely assimilated the expectations of a slowdown in the Fed’s rate hike, and further observations will be made on the future pace of the Fed’s rate adjustments. The domestic aluminium supply remains high while demand is weak. Concerns about power supply arise due to the hot weather in the southwest region. The cost of aluminium has rebounded under the influence of alumina, which provides support for the aluminium price. SMM predicts that in the short term, SHFE aluminium prices will mainly fluctuate within a narrow range.
• Yesterday, aluminium settled down by -1.18% at 197.3 as smelters in the southwestern Yunnan province resumed production after easing power usage restrictions. In the first half of 2023, China’s aluminium imports increased by 10.7% compared to the same period last year, based on customs data. The country imported 1.2 Million Metric tonnes (MMT) of unwrought aluminium and aluminium products, including primary metal and alloyed aluminium, from January to June.
• June imports totaled 211,235 MT, showing a 12.8% increase compared to the same month in 2022 and surpassing the 191,701 MT recorded in May. The limited growth in domestic production was mainly due to the hydropower shortage in Yunnan province. In June, China’s aluminium production rose by 2.9% to 3.46 Million Metric tonnes (MMT) compared to the same month in the previous year. For the first half of the year, China’s aluminium production reached 20.16 Million Metric tonnes (MMT), representing a 3.4% increase from the same period last year.
• From a technical perspective, the market is experiencing long liquidation as open interest has dropped by -4.57% to settle at 2796, while prices are down by -2.35 Rs. Currently, aluminium is finding support at Rs. 196.4/Kg, and if it goes below this level, it could test Rs. 195.3/Kg. On the other hand, resistance is expected at Rs. 199.3/Kg, and a move above this level could lead to prices testing Rs. 201.1/Kg.

News

• Throughout June, aluminium prices experienced a continuous decline, but in early July, they showed signs of stabilising. Relief patterns started to form in the short term, indicating a potential recovery after several months of bearish price action. Moreover, the improvement in market sentiment was supported by cooling inflation data. Notably, the U.S. dollar index, which usually moves inversely to metal prices, dropped below the 100 mark for the first time since April 2022 as investors anticipated no further rate hikes from the Federal Reserve.
• Despite these developments, the aluminium markets remain uncertain, with no clear signals indicating a definite direction. As a result, the market is currently in a consolidation phase. The Aluminium Monthly Metals Index (MMI) experienced a modest 1.79% decline from June to July. One notable aspect is the increasing presence of Russian-origin aluminium in LME warehouse inventories, now representing over 80%. However, the news of rising Russian stocks due to sanctions has become repetitive, and the LME continues to accept Russian-origin material, which may potentially affect the overall aluminium price. There is a concern that an abundance of Russian-origin material within LME warehouses might lead to a shortage of aluminium produced elsewhere, thus impacting prices.
• The LME defends its decision by stating that the ongoing demand for Russian-origin aluminium from various countries, especially amid a slowdown in the West, would regulate the price. Currently, LME and CME aluminium prices continue to trade similarly, with LME prices maintaining a premium of approximately $55/MT over CME prices. However, the Midwest aluminium premium, an indicator of domestic demand, remains bearish and is at its lowest point since December 2022.
• On the other hand, Indian aluminium supply has become a crucial counterweight to the increasing presence of Russian material in LME inventories and its potential impact on aluminium prices. Despite the rise in Russian stocks, production levels in Russia and Eastern Europe decreased by 1.62% year over year in H1. This situation indicates that Indian aluminium production plays a significant role in balancing the market.

OFB’s Opinion

• The outlook for the week appears bearish for Aluminium prices. The smaller Time Frame shows strong resistance within the range of Rs. 197/Kg to Rs. 206/Kg, and it is anticipated that prices may hover between Rs. 202/Kg to Rs. 206/Kg. Expectations suggest that Aluminium could trend downwards in the coming week.