Outlook:

Short term       
(1-3M):
Flat
Medium term
( 3-6M):
Up
Long term
(12M):
Up
Resistances:
R1 1,803 40 DMA
R2 1,818 20 DMA
R3 1,829 100 DMA
R4 1,870 200 DMA
R5 1,936 double-top
R6 2,267 Oct 4, 2018 high
R7 2,374 May 2018 high
Support:
S1 1,989 UTL from Nov 2015 low
S2 1,870 200 DMA
S3 1,845 triple bottom
S4 1,829 100 DMA
S5 1,818 20 DMA
S6 1,745 YTD 2019 low
Stochastics:
Converging in low ground
Legend:

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







Analysis
  • The LME three-month aluminium price remains under pressure so far on Monday August 5, approaching recent support around $1,750 per tonne.
  • Momentum indicators remain negative - the stochastics are trending lower, as is the RSI, which stands at 35.
  • Scaled-down support is seen towards the June 17 and year-to-date low at $1,745 per tonne. A break below could leave aluminium to test support around $1,670 per tonne from December 2016/January 2017.
  • Resistance is seen from the 40 and 20 DMAs at $1,803 and $1,818 per tonne respectively. The 200 DMA stands above at $1,876 per tonne, ahead of the March 20 and year-to-date high at $1,951 per tonne. 
Macro drivers
Equity prices are on the defensive so far on Monday - trade tensions have flared up following US President Donald Trump’s announcement that the United States plans to impose 10% tariffs on a further $300 billion of Chinese goods from the start of September following stalled negotiations. Chinese authorities have responded, devaluing the yuan.

LME aluminium warehouse stocks totaled 1.020 million tonnes on Monday, up from 926,875 tonnes on July 12 following inflows totaling 173,625 tonnes in late July. The LME aluminium cash/three-month spread was most recently in a contango of $29 per tonne but stocks and spreads are likely to become more volatile because of falling availability. Fresh cancellations remain supportive - currently, 25.8% of stocks are booked for removal.

Chinese aluminium production remains on an upward trajectory - output totaled 17,413 million tonnes in the first half of 2019, up by 2.2% year on year. This continues to boost exports of unwrought aluminium and aluminium products, which were up by 12.4% over the first half of 2019. Shanghai Futures Exchange aluminium stocks totaled 403,660 tonnes on August 2, down from 747,012 tonnes on March 1.

Aluminium production outside of China continues to lag behind while smelters face mixed fortunes.

Russian aluminium producer Rusal reported aluminium production of 938,000 tonnes in the second quarter of 2019, down slightly from 939,000 tonnes in the same period in 2018. Meanwhile, Rusal reported sales of more than 1 million tonnes of aluminium, reflecting the sale of surplus primary aluminium inventory accumulated while US sanctions were in place

The latest figures from the International Aluminium Institute show global production (excluding China) totaled 13.75 million tonnes in January-June 2019, which is down from 13.83 million tonnes in the first six months of 2018.

There are capacity additions planned outside of China also. Aluminium Bahrain (Alba) has begun commissioning its Potline 6, which should boost production in the region by 40% in 2019. Rusal has begun commissioning its 268,000-tonne-per-year Boguchansk smelter in Siberia. This will add to other recently completed capacity restarts such as Alcoa’s Warrick smelter and Century Aluminum’s Hawesville smelter. The 130,000-tpy Aluminij Mostar smelter in Bosnia will close after years of financial struggle, however.

In the physical market, aluminium premiums remain supported in the week to July 30 by wider LME contangos but remain capped by slowing seasonal demand. Tight availability is supporting rates in South Korea.

Meanwhile, imports of aluminium alloys from China into the US will be subject to at least 20% in tariffs by September if the latest round of tariffs threatened against China take effect. 

The latest commitment of traders data shows that net short exposure among LME investors increased by 987 lots in the week to July 26; the 585-lot build in fund shorts compounded to 402-lot decline in gross longs. We maintain our view that speculative positioning remains extremely polarized, which could lead to increased price volatility in the short term.

The underlying fundamentals are starting to look more constructive. The World Bureau of Metal Statistics placed the refined aluminum market in a 344,000-tonne deficit in the first five months of 2019. Still, Fastmarkets analysts forecast the global aluminium market to record a narrower deficit of 970,000 tonnes in 2019 rather than 1.22 million tonnes previously forecast, adding to the estimated 1.6-million-tonne deficit in 2018.


Conclusion
Factors such as persistent structural tightness alongside elevated speculative short exposure still pose upside price risks. But selling pressure has returned amid increasing macroeconomic uncertainties. Failure to hold above the June 17 and year-to-date low at $1,745 per tonne risks a deeper reversal.


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.
    • is testing the UTL formed by the January 3 low on Monday February 11, after breaching support from the 20 and 40 DMAs.
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    • is testing the UTL formed by the January 3 low on Monday February 11, after breaching support from the 20 and 40 DMAs.
  • Meanwhile o
    • is testing the UTL formed by the January 3 low on Monday February 11, after breaching support from the 20 and 40 DMAs.
  • Meanwhile o