Supply shortage in China keeps driving aluminium prices up globally

LME aluminium prices continue to rise, though at a moderate rate, as active investors watch perplexed as to what is driving the rise because, there are many macroeconomic factors, especially US presidential elections, which are actually expected to keep the market subdued. However, supply shortage in the Chinese market where overcapacity remains an issue is driving the global aluminium prices up, observe analysts.

LME aluminium closed at US$1716 /mt after Monday's night trading. LME Aluminium is expected to strengthen throughout the week, according to an SMM forecast.

On the premiums side, the US midwest delivery premiums are higher than European or Japanese — accurately reflecting the relative tightness of those three market regions to each other, they are still near the historic norms.

Investor sentiment has been bullish, driven in large part, according to Reuters, by a narrative of falling LME inventory meaning a looming shortage of metal.

“The drawdown in LME stocks to an outsider would suggest a tighter market, but that’s only on the LME,” says Reuters report.

In China, aluminium traded on Shanghai Metals Exchange opened at US$2111/mt on Tuesday, Nov 8. 

During Monday's trading, SHFE 1701 aluminium was the most actively traded one. It started at RMB 13,270/mt and then advanced to RMB 13,455/mt sharply with entering of longs. The contract dropped to the 5 and 10-day moving averages. Later, coking coal, coke and rebar advanced to their daily upward limits, raising bullish sentiments in base metals market. SHFE 1701 aluminium surged to RMB 13,580/mt briefly and later gave up most previous gains, hurt by exit of longs, and finally ended at RMB 13,340/mt.

As per SMM data, trading volumes increased to 338,492 lots and positions rose 1,084 to 204,920. Positions of SHFE 1702 aluminium increased 10,736. SHFE 1701 aluminium dropped from highs on Monday with negative technical indicators and underperformed other base metals. Spot premiums will still support SHFE 1701 aluminium but there's a small possibility for contract to surge again, SMM predicts. Market players are suggested to take profit at highs.

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