SMM Aluminum Market Daily Review (2013-3-4)

SHANGHAI, Mar. 5 (SMM) – SHFE 1305 aluminum contract opened at RMB 14,615/mt on March 4. Disappointing February manufacturing PMI in China and new control measures targeted at China’s housing markets caused the Shanghai Composite Index to plunge by 3.65%. The most active aluminum contract found its low at RMB 14,520/mt, and finally closed at RMB 14,575/mt, down RMB 100/mt or 0.68%. Trading volumes were down 3,672 lots to 10,154 lots, while positions also decreased 744 lots to 88,068 lots. Continuously falling aluminum prices are turning investors even more bearish. With inventories growing steadily and with consumption showing no signs of recovery, SHFE aluminum prices are expected to fall further.  

Spot aluminum was mainly traded at RMB 14,330-14,360/mt in Shanghai on Monday, with discounts at RMB 70-100/mt. Low-iron aluminum was traded around RMB 14,450/mt. SHFE current-month aluminum contract prices extended losses and lost 0.48% at midday. Most traders continued to move goods at discounts, while some stood on the sidelines due to continuously falling SHFE aluminum prices. Traders in Wuxi and Hangzhou saw no improvement in downstream purchases and were anxious to sell out of their growing pessimism over current aluminum prices.

SMM aluminum price averaged RMB 14,480/mt last week, down RMB 210/mt on a weekly basis, and averaged RMB 14,350/mt on Monday. SMM conducted a survey on 34 domestic aluminum ingot traders and producers. Downstream consumption has yet to pick back up, pushing aluminum inventories up. Control measures on China’s property sector also dampened market sentiment. As such, further declines in aluminum prices are expected.

A mere 6% of market players are bullish towards this week’ s aluminum prices. They believe that aluminum prices have fallen to near cost levels, forcing some smelters to scale back production. Besides, March will be a seasonally high-demand season for aluminum ingot consumption. Improvement in market fundamentals will help aluminum prices reverse losses.

65% of market players are pessimistic towards aluminum prices this week. First, growing aluminum ingot stocks and anemic downstream demand have dampened market confidence again. Second, new control measures on domestic housing markets will curtail the construction of new houses. Market players thus believe spot aluminum market will remain in surplus. Third, the US dollar index rose steadily against a weak euro and depreciation of the Yen, which will weigh down LME aluminum prices. Weak LME aluminum prices, in turn, will pass onto aluminum prices in China.  

The remaining 20% are neutral towards aluminum prices in this coming week for the following reasons. First, cost support and hopes for favorable measures from the upcoming National People's Conference (NPC) and the Chinese People's Political Consultative Conference (CPPCC) sessions will curtail losses of aluminum prices. Second, China’s February manufacturing PMI dropped and missed forecasts, but seasonal factors can explain the decline. In addition, the PMI still stayed above 50, suggesting domestic economy continued to recover. Third, the US Federal Reserve promised not to end QE3 early, favoring commodity prices. Although a firm US dollar will drag LME aluminum down, the US dollar index will unlikely hover high for a long time. In this context, LME aluminum will swing less violently, and SHFE aluminum will move within narrow ranges as well.