Aluminium gains as China's Yunnan aluminium production cuts as dry

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Aluminium gains as China's Yunnan aluminium production cuts as dry
Credit: © Reuters.

Aluminium prices experienced a minor decline of -0.12% to settle at 206.25 due to a significant development in China's aluminium industry. Chinese aluminium smelters in Yunnan province initiated a capacity cut of 1.15 million metric tons, as required by a recent curb imposed by China Southern Power Grid (NS: PGRD ), effective until April. 

This restriction, issued on October 30, mandated local producers to reduce production by 9% to 40% of their capacity. Yunnan, the fourth-largest aluminium-producing region in China, holds approximately 12% of the country's total capacity, and the region has seen capacity growth driven by cheap hydropower. However, water shortages have started to impact production. In 2023, global aluminium production has been on the rise, especially in Europe as power prices stabilized, and in China's Yunnan province, following the relaxation of hydropower restrictions. Nevertheless, subdued demand resulting from weak economic conditions, notably in Europe, has led analysts to revise their outlook on the aluminium market. Instead of expecting deficits in 2023 and 2024, they now anticipate surpluses of 338,000 tons and 250,000 tons, respectively. 

From a technical perspective, the market has seen a decline in open interest by -1.11%, settling at 3020, alongside a price decrease of -0.25 rupees. Currently, aluminium finds support at 205.5, with the potential to test 204.8 levels, while resistance is likely at 207.3, with the possibility of prices testing 208.4.

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