Short term: Flat
Medium term: Up
Long term: Up
R1 1,936  20 DMA
R2 1,981 Recent high
R3 2,119.50  High 2014
S1 1,936 20 DMA
S2 1,933 UTL
S3 1,848 Mar 9 low

BB - Bollinger band
HSL - horizontal support line
SL - support line
MACD - moving average convergence divergence
DTL - downtrend line
UTL - uptrend line
H&S - head-and-shoulder pattern

Having set a fresh high at $1,981 per tonne at the end of March, prices went on to consolidate before heading lower gain more recently.

The pullback has broken the steep UTL and the 20 DMA, but for now the pullback looks routine.

Given the strength of the trend, we expect the rally to continue. But in the short term, the downward-moving stochastics suggest there is room for the dip to run further. To remain overall bullish, we would want to see prices hold above $1,848 per tonne .

Generally, we expect prices to challenge the highs and move on to challenge supply in the $2,000-2,120 per tonne range at some point in the future but in the short term a test of support, possibly down to $1,850 per tonne, may be on the cards.


Macro drivers

LME stocks continue to fall, dropping to 1.76 million tonnes; but whereas available stocks had fallen below 1 million tonnes, in recent days the re-warranting of cancelled warrants has seen availability rise.

Between April 7-11, 111,875 tonnes of cancelled warrants were re-warranted. This has taken available stocks to 1.1 million tonnes.

The re-warranting has eased the spread. Basis evening evaluations on April 12, the cash/three-month spread was at $14 per tonne contango, out from $7c on March 29. 

Nearby-dated metal remains in concentrated hands. One entity now holds 3-3% of the warrants and similarly sized tom and cash positions.

The physical market seems to be seeing good demand, but availability is good and is likely to get better as more exports to the USA arrive and as higher prices encourage production to be lifted were possible.

 Good Chinese trade data, released this morning showing exports and import rising, bodes well for global growth.



The upward trend looks bullish as does the LME stock data but the fundamentals look less so; we wait to see if the firmness in LME aluminium mobilises more of the off-market aluminium stockpiles. But with the spread not showing much tightness, there may be little incentive for that yet. Having seen another strong upleg and having run into resistance ahead of $2,000 per tonne, alongside weakness in other metals, we would not be surprised by some short-lived weakness in aluminium prices.

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