Aluminium climbed as firm demand in China and lower inventories in LME warehouses.

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Aluminium climbed as firm demand in China and lower inventories in LME warehouses.
Credit: © Reuters.

The rise in aluminium prices, up by 0.78% to settle at 205.45, can be attributed to several factors. Firstly, robust demand in China and diminishing inventories in London Metal Exchange (LME) approved warehouses have provided a strong push. LME aluminium stocks have fallen by almost 20% since early June. The significant proportion of cancelled warrants, representing metal earmarked for delivery, indicates a likelihood of more aluminium leaving the LME system. 

Concerns about availability on the LME have narrowed the cash discount over the three-month aluminium contracts to around $16 a ton, a considerable reduction from levels above $50 a ton in August. Hydro, a Norwegian aluminium manufacturer, has no immediate plans to reduce primary metals production further, focusing instead on curtailing production in recycling units. In China, aluminium ingot inventory has seen a slight decline but remains 2,000 mt higher than the same period last year. Changes in domestic goods in transit may impact future arrivals, with steady or slightly reduced inventories in China's major consumer regions. 

From a technical perspective, the market has witnessed short covering as open interest dropped by -9.5% to settle at 3,228. Prices have increased by 1.6 rupees. Aluminium is currently finding support at 204.1, and if it falls below this level, it could test 202.6. On the upside, resistance is expected at 206.3, and a break above this level may lead to price testing at 207.

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