ALUMINIUM TODAY: Easing supply concerns keep sellers in charge

Very short term (1M):   Up
Short term (3M): Up
Medium term (6M): Up
Long term (12M): Up
R1 1,968 20 DMA
R2 2,021 50 DMA
R3 2,353 recent high
S1 1,928 Nov 13 low
S2 1,920 61.8% Fibo Nov 2015 low-Apr 2018 high
S3 1,855 Jun 2017 low
Trying to turn

BB – Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
RSI – relative strength index
UTL – uptrend line
H&S – head-and-shoulder pattern

  • The London Metal Exchange three-month aluminium price continues to consolidate near the 2018 low.
  • The declining 20 DMA continues to put downside pressure on the light metal and kept any upside momentum limited for now. 
  • Its technical indicators remain listless, with the daily RSI and stochastic lines indicating little interest to venture higher.
  • That said, we are mindful that LME aluminium technical backdrop is oversold and a solid break above the 20 DMA could entice more buyers to enter the market again. 
  • The main battle line is to overtake the psychological price level at $2,000 per tonne.


Macro drivers

Global risk appetite is showing sign of improvement this morning, with Asian equity market edging higher. China CSI300 index lead the charge, up 36 points or 1.13% followed by Nikkei up 140 points or 0.65% while Hang Send is on course to close positively too, up 158 points or 0.60%. Despite the positive start in the equity market, the base metals complex remained under selling pressure, with LME nickel taking the brunt, down 1.23% to register a fresh 2018 low. 
LME aluminium price stayed under the psychological price level of $2,000 per tonne amid easing supply concern from UC Rusal to Hydro Alunorte and a rising LME stocks level. US sanctions on UC Rusal has been extended to Monday January 7, 2019 by the US Treasury Department’s Office of Foreign Assets Control. There is a growing consensus that the sanction will soon be lifted and it it does, the extra material that are stockpiled in St Petersburg and Siberia might end up in Western Europe. So far in 2018, UC Rusal company earnings showed a 18.6% jump in revenue year over year thanks to previous extension of the deadlines. 
Meanwhile, Brazil’s federal court has decided to uphold the decision to curtail Hydro’s Alunorte production capacity at 50%. Fastmarkets learnt that the latest development has no effect on alumina price, with alumina index fob Australia settled at $423.33 per tonne on Thursday November 8, down from previous day $428.75 per tonne. In fact, some market participants believed that Alunorte disruption will be resolved by 2019 and the plant will resume operating at 100% again.
Adding to the downside pressure is the sizeable aluminium stocks level in China. It remains a net exporter of the light metal and the abundant domestic supply meant that it has reduced imports too. In addition, Fastmarkets learnt that the latest Chinese winter production restrictions will not be as stringent as expected because a number of state producers have met the regulated emission standards. The potential extra supply from China has dampened interest on the light metal even at this discounted price level.
Rising LME aluminium stocks level continue to add bearish pressure on its price action. This has raised fresh concern that there are more idle metals from the off-exchange grid. A total of 6,475 tonnes of inflow was registered this morning which easily offset the outflow of 1,900 tonnes. Total LME stocks level rose to 1,070,925 tonnes, a contrast to the 926,100 tonnes seen on October 12. Available stocks have also increased from the low at 605,650 tonnes to the current level at 771,075 tonnes while cancelled warrants continue to dip lower. 
While LME stocks level continue to rise, metals are seen leaving SHFE-approved sheds, with 15,455 tonnes of outflow as of November 16. Total SHFE stocks level dipped to 765,353 tonnes, with most of the materials exported by China. 
On the physical front, Fastmarkets global aluminium wrap indicate that traders are mostly focused on long-term contracts, with deals for 2019 somewhat in-line with current premium. Benchmark Rotterdam duty unpaid premium stood unchanged at $70-75 per tonne on November 13.

Despite the bearish catalysts surounding LME aluminium, we remain mindful that the light metal looks a tad oversold already. But the combination from the weak buying interest and with no sign that the US-China can resolve their trade dispute, we envisage aluminium price to continue consolidating near recent low in the very short term.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.


November 19, 2018

11:16 GMT