Aluminum
The Chinese central bank announced in the evening of May 12 to cut banks’ reserve requirement by 0.5 percentage point from May 18, a second cut this year and a signal that monetary policies will continue to loosen as necessary. However, investor worries towards implementation of austerity measures in Europe due to political uncertainty in the region overshadowed support from China. The most active SHFE aluminum contract for August delivery opened slightly higher at RMB 16,090/mt and hit a high of RMB 16,150/mt, but finally closed down RMB 80/mt or 0.5% at RMB 15,990/mt as short selling strengthened. Positions added 2,554 lots to 102,524 lots. Losses were seen in both stocks and futures markets. Though SHFE aluminum shed less losses compared with other base metals, contracts for near month delivery slipped immediately below RMB 16,000/mt, triggering a strong bearish market sentiment. The macro economy should stay on the negative side, indicating stronger pressure at RMB 16,000/mt for the most actively traded contract.

Spot aluminum traded at RMB 16,000-16,030/mt in Shanghai, at premiums of RMB 20-50/mt over the current-month SHFE aluminum contract. Traded prices of spot aluminum were RMB 16,010-16,030/mt in Wuxi and RMB 15,990-16,020/mt in Hangzhou. Premiums expanded to RMB 50/mt as goods holders held quotations at RMB 16,000/mt. Buying was quite weak, however, leading to extremely light trading.

SMM’s recent survey on this week’s aluminum prices covered 42 traders. 20 are neutral and 22 pessimistic.

There are no optimistic traders in this week’s survey, highlighting worries of domestic traders. The number of pessimistic traders increased from 7 to 22, accounting for 52% of all respondents. These traders said spot aluminum saw discounts changing into premiums, showing stability in aluminum spot. It has also received support from large aluminum businesses and traders. However, as news from overseas markets is still negative, the European debt crisis is still unclear and Greece’s euro zone exit triggered speculation. The US dollar index also hit a new high, weighing on LME aluminum prices, which may slip to USD 2,016/mt, a new low this year. In the domestic market, though the reserve requirement cut confirms loosening monetary policies, downstream demand stays weak. The current-month contract dropped for 8 successive trading days as a result of development in overseas markets. Spot demand in the peak-demand season is still weak, weighing on aluminum prices. These traders expect aluminum prices to drop below RMB 16,000/mt in the near term.

Remaining 20 traders expect aluminum prices to stabilize this week. These traders acknowledge aluminum prices are pressured in the near term, but also expect stability given support at the bottom, higher bauxite duties in Indonesia, possible supply cut by large aluminum businesses when prices fall, weaker impact from Europe as some risk aversion demand has already been met, a reserve requirement cut by Chinese central bank and resumption of real estate and rail transportation projects. They expect aluminum prices to stay at RMB 16,000-16,100/mt this week.