Outlook:  
Short term
(1-3M):
Up
Medium term
(3-6M):
Flat
Long term
(12M):
Up
Resistances:
R1 1,500 20 DMA
R2 1,526 40 DMA
R3 1,540 Long term UTL
R4 1,580 Mar 23 low
R5
R6
1,613 Mar 18 low
1,685 Feb 4 low
Support:


S1 1,608 Oct 2016 low
S2 1,540 40 DMA
S3 1,540 Long term UTL
S4 1,500 20 DMA
S5 1,455 Apr 8 low
S6
1,432.50 Nov '15 low
Stochastics:
Converging in mid-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
DTL – downtrend line
UTL – uptrend line
H&S – head-and-shoulder pattern
RSI – relative strength index











Analysis 
  • The LME three-month aluminium price continues to consolidate in low ground so far on Tuesday May 12 although prices remain capped by resistance at the 20 DMA, which is currently at $1,500 per tonne, as implied by small upper shadows on recent daily candlesticks.
  • Momentum indicators appear to be rolling lower - the stochastics are poised to cross lower in low ground and the RSI has rolled lower.
  • Aluminium continues to face resistance from the the 40 DMA at $1,526 per tonne ahead of the long-term UTL formed from the 2009/2016 lows, which stands at $1,540 per tonne. 
  • Further support is seen ahead of the April 8 low of $1,455 per tonne. But the symmetrical triangle that appears to be forming implies downside risks remain; we have a price target of $1,400 per tonne based on this.
Macro drivers
Aluminium stocks in LME-listed warehouses totaled 1.354 million tonnes on Tuesday, down from a recent peak of 1.356 million tonnes at the end of April, reflecting slower inflows. Still, 625,350 tonnes have been delivered on-warrant so far in 2020, the bulk into Asia. Fresh cancellations have featured recently - 14.4% of stocks are booked for removal at present, up from 8.7% on April 21.

Shanghai Futures Exchange aluminium stocks totaled 388,899 tonnes on May 8, down from 533,994 tonnes on March 20, which reflects rising downstream demand. And while China's aluminium production remains on an upward trajectory, increasing by 2.7% year on year in the first quarter, plans to stockpile non-ferrous metals announced by provincial governments will reduce pressure for much-needed producer discipline.

The latest figures from the International Aluminium Institute (IAI) show global production (excluding China) totaled 2.377 million tonnes in March 2020 compared with 2.357 million tonnes in January 2019. 

Still, falling aluminium prices are increasing the pressure on producers elsewhere, which also increases the risk of smelter closures.  

Because of the impact on aluminium demand created by quarantine measures to slow the spread of the Covid-19 pandemic, Fastmarkets now forecasts the global aluminium market to record a surplus of 4 million tonnes in 2020 compared with the 685,000-tonne surplus registered in 2019, according to the World Bureau of Metal Statistics (WBMS).

In the physical market, the Brazilian import aluminium premium slid to a 42-month low in the week ended Tuesday May 5. Short-covering provided modest support to spot aluminium premiums in Japan.

The latest commitment of traders (COT) data shows net short exposure in LME aluminium widened by 1.969 lots to 31,788 lots in the week to May 1, with further short selling negating an increase in new longs.

Conclusion
We maintain our short-term outlook that aluminium prices need to clear immediate resistance from the 20 DMA to avoid follow-though selling pressure, which risks aluminium extending to fresh lows around $1,400 per tonne based on the current chart configuration.

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