Aluminium on MCX settled down -2.22% at 103.70 as aluminium prices failed to sustain their April gains despite the large boost to Chinese credit growth early this year. The latest data releases on Chinese trade, production, investment and credit suggest that the economy's burst of life is unlikely to last. Aluminium remain oversupplied, and prices to significantly underperform the smaller base metals over the coming months. While Aluminum demand might not grow at 6% as Alcoa (NYSE:AA) is projecting. Weakness in construction demand might balance the demand increase from the transportation sector.
Nonetheless, aluminum demand growth might still be better than steel and aluminum. In our view, there’s downside risk to the ~6% demand growth that Alcoa and RUSAL are expecting. There are also concerns over aluminum supply. True, Chinese aluminum production has fallen year-over-year (or YoY) for two consecutive months. Chinese aluminum exports have also fallen in January as can be seen in the graph above. However, the slowdown in Chinese aluminum exports seems driven by the steep fall in aluminum prices earlier this year.
As aluminum prices have recovered from their January lows, we might again see an uptick in Chinese exports. The hanging sword of Chinese exports would keep aluminum prices in check despite favorable demand. Now Investors will focus on tonight's US nonfarm payrolls data, a solid reading could heighten expectations for a U.S. interest rate move as early as the Federal Reserve's June 14-15 policy meeting. Technically market is under fresh selling as market has witnessed gain in open interest by 71.55% to settled at 4088 while prices down -2.35 rupee, now Aluminium is getting support at 102.8 and below same could see a test of 101.7 level, And resistance is now likely to be seen at 105.7, a move above could see prices testing 107.5.
Trading Ideas:
--Aluminium trading range for the day is 101.7-107.5.
--Aluminium dropped as prices failed to sustain their April gains despite the large boost to Chinese credit growth early this year.
--The latest data releases on Chinese trade, production, investment and credit suggest that the economy's burst of life is unlikely to last.
--Aluminum daily stocks at Shanghai exchange came down by 2225 tonnes.