Short term: Flat
Medium term: Up
Long term: Up
R1 2,119.50 Aug/Sep 2014 double-top
R2 2,175 200 DMA
R3 2,279 20 DMA
R4 2,290 Dec 2017 high
R5 2,361 Mar 2012 high
R6 2,434 38.2% Fibo current rally
R7 2,718 Apr 2018 high
S1 2,347 50% Fibo Apr 5-19 rally
S2 2,279 20 DMA
S3 2,260 61.8% Fibo Apr 5-19 rally
S4 2,215 Oct 26/Nov 1 high
S5 2,212 100 DMA

2,175 200 DMA
1,998.50 Dec 7 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
RSI – relative strength index

  • Aluminium prices remain under pressure, breaking below support from the 100 DMA at $2,212 per tonne on Monday June 18, although the tails visible on recent daily candlesticks suggest dip-buying has emerged.
  • The stochastics remain bearish for now although the stochastic fast line has flattened. The RSI at 37 suggests price are approaching oversold territory.
  • Support below is now at the 200 DMA at $2,175 per tonne ahead of the April 24 low at $2,175 per tonne. Below this stands the February 9 low at $2,121 and the early-April lows at $1,977.
  • Further scaled-up resistance is seen toward the May 8 high at $2,374.50 per tonne; the upper shadows visible on the (inset) monthly chart suggests prices face strong overhead selling pressure, which is likely to be a significant barrier for price gains over the short-to-medium term.
Macro drivers
London Metal Exchange stocks totaled 1.139 million tonnes on June 13, down from 1.34 million tonnes on April 30. Nearby spreads remain tight - the cash/three-month spread was most recently in the backwardation of $1.25 per tonne, although this has so far attracted only minimal inflows and re-warranting. Currently, 20.3% of LME stocks are booked for removal. The risk of further flows remains - the June data becomes prompt this week. There are currently three short positions holding 15-27% of open interest compared with one entity accounting for 20-29% of longs.

In the physical market, tight nearby spreads continue to weigh on premiums, particularly in Europe - the Rotterdam duty-unpaid premium slipped to $105-115 per tonne from $110-125 per tonne a week earlier. Rates in the United States have begun to soften due to slowing seasonal demand while third-quarter main Japanese ports (MJP) negotiations continue.

While Chinese officials have vowed to make further aluminium capacity cuts in 2018, there is little evidence of this in recent data. Output increased 1.4% year on year in the first five months, and will remain supported by capacity expansions. Still, Shanghai Futures Exchange stocks edged lower to 957,646 tonnes as of June 15 from 993,204 tonnes on April 20 due to a reduction in export VAT rates and rebates supporting exports; exports of unwrought aluminium and aluminium products increased 12.8% year on year in May to 485,000 tonnes.

Global production, excluding China, averaged 76,500 tonnes per day in April compared with an average of 74,900 tpd in April 2017, according to recent International Aluminium Institute data. Capacity restarts are under way in the US following Section 232 tariffs, although headwinds have emerged after Alcoa shut one of three potlines before the Warrick aluminum smelter restart due to a temporary power outage.

But the latest estimates from the World Bureau of Metal Statistics remains supportive - it has pegged the market in a modest 141,000-tonne deficit in January-March 2018, adding to the 1-million-tonne deficit in 2017. 

While negative sentiment remains intact, price support has emerged below $2,210 per tonne. Various factors such as tight spreads, rising interest rates, slowing seasonal demand and capacity restarts continue to cloud the outlook over the short-to-medium term but, provided that prices hold above the 200 DMA at $2,175 per tonne, we would expect range-trading to continue. 

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