Very short term (1M):   Up
Short term (3M): Up
Medium term (6M): Up
Long term (12M): Up
Resistances:
R1 1,960 20 DMA
R2 2,015 50 DMA
R3 2,353 recent high
Support:
S1 1,925 Nov 15 low
S2 1,920 61.8% Fibo Nov 2015 low-Apr 2018 high
S3 1,855 Jun 2017 low
Stochastics:
Turn higher
Legend:

BB – Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
RSI – relative strength index
UTL – uptrend line
H&S – head-and-shoulder pattern

Analysis
  • The LME three-month aluminium price continues higher thanks to follow-through buying momentum since the Monday November 19 low at $1,928.50 per tonne.
  • Its technical indicators look supportive too - the daily RSI starting is rising while the stochastic fast line has completed a bullish crossover. 
  • LME aluminium now needs to break above the nearby 20 DMA as well as the DTL off the October 8 high (see chart).
  • Only then the light metal can continue higher to target the declining 50 and 100 DMAs.

Macro drivers
Although major US indices stabilized ahead of the Thanksgiving holiday, the sell-off since the start of the week has wiped out most of the gains made earlier this year. In Europe, confidence has picked up, pushing equities modestly higher. Asian equity market reacted positively, with the Nikkei up 139 points or 0.65%, the Topix up 13 points or 0.81% and the Hang Seng up 76 points or 0.3%, although the China CSI300 shed 12 points or 0.37% at the time of writing. Trading volume in the base metals is considerably smaller today; while most metals prices are holding above recent lows, LME nickel has reached a fresh 2018 low this morning.

Fresh supply developments out of China are underpinning global aluminium prices. China Nation Radio reported that top steelmaking province Hebei has issued second-level smog alerts to its 10 cities, effective November 22. This is expected to reduce output and utilization rates at heavy industry in the province, with alumina supplies likely to be affected. Further smelters closures are likely because of lower prices and alumina shortages.

But with SHFE stocks at 765,353 tonnes, there is still plenty of aluminium in China. The latest Chinese winter production restrictions will not be as stringent as expected because several state-run producers have met the required emission standards. While SHFE stocks continues to trend lower, drawdowns must be more aggressive to signify that the demand is outstripping supply.

On the LME, the narrowing December-January spread, which was recently at $4.75 per tonne, has boosted 
physical activity in Europe. Increased liquidity also raised the Rotterdam premium. With the UC Rusal sanctions extended again until January 2019, most market participants are reluctant to buy because banks are unlikely to finance the trade.

In Asia, though, the spot MJP aluminium premium is under pressure from backwardated spreads. A market source says there is hardly anyone looking for material on spot - the market is more interested in selling excess stocks, creating the impression that there is more supply around. For our detailed global aluminium wrap, please click 
here.

Conclusion
LME aluminium prices are improving, with a solid base starting to form above $1,900 per tonne (see chart). The improving technical configuration should give technical buyers the confidence to maintain their bullish exposure too. We said previously that a great deal of the bearish catalysts have been priced in and the path of least resistance may well be to the upside. But we remain mindful that as long as its price remains under the psychological price level of $2,000 per tonne the sellers are at an advantage.

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