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Should aluminium smelters in the GCC be unable to move metal out of the region via the traditional Strait of Hormuz route, they could consider stockpiling units at nearby ports, assuming those facilities remain secure and are not targeted. In any case, GCC smelters would aim to keep production running. However, access to a reliable alumina supply becomes a critical concern. If alumina shipments are disrupted and inventories run down, smelters could be forced into production cuts. An initial reaction is to see the LME aluminium price trade higher as traders are likely scramble for units in fear of an extended supply drought.
At the same time, any large stockpile of alumina stranded outside the GCC may struggle to find alternative buyers. If the conflict between the US–Israel and Iran drags on and the Strait of Hormuz remains compromised, GCC smelters would be unable to absorb those volumes. In such a scenario, the global alumina market could tip into excess supply, exerting downward pressure on an already low price and potentially force it to trade below $300 per tonne.
Rising oil prices could drive inflation and in turn raise commodity price. But if inflation starts to get out of control, the dollar could strengthen quickly—and that would put real pressure on the bullish momentum in metals. There could also be higher logistical risks and insurance costs.
And should inflation remain elevated into May/June, US President Donald Trump could face political pressure, undermining his ability to secure a victorious mid-term election. The dollar could also rebound sharply if newly appointed US Federal Reserve Chairman Kevin Warsh chooses to address rising inflation over an interest rate cut.
Given the current geopolitical tensions in the Middle East, we are mindful that the Rotterdam P1020 aluminium premium could react higher, with $400 per tonne as the first upside target and potentially as high as $420 per tonne.
Should LME aluminium price continue to track the seasonal pattern, the trading outlook in the month of March does not look too bullish. In fact, the 25-year seasonal pattern suggests a negative price performance for the light metal. Despite the notable dip in March, there are strong expectations for an April rebound. However, we will continue to monitor how the LME aluminium price trades near the $3,200 per tonne level for clues on its next directional play.
We have posted our $3,200-per-tonne target for the previous six months and London Metal Exchange aluminium had attained the upside target. Going forward, the light metal will need new catalysts to support the price beyond $3,200 per tonne on a monthly close.
It will require a significant event, such as an unforetold supply disruption or geopolitical situation that involves trade routes. Only a bullish monthly close above $3,200 per tonne will provide the opportunity for the light metal price to target $3,500 per tonne and potentially $3,750 per tonne.
We cannot rule out that $3,200 per tonne might act as a short-term ceiling. It could cap further gains and perhaps put the light metal under fresh selling pressure. Given how overbought the aluminium market is – practically on all time frames – some sort of healthy technical consolidation is warranted.
We will only get extremely bearish if the LME aluminium price can produce a monthly close below $2,700 per tonne.
The LME aluminium daily chart still boasts a series of higher highs and lows and that imply that the bulls are still in control in the short-term. For the bulls, the monthly close above $3,200 per tonne remain the key trigger.
In the meantime, we remain mindful that it could be too early to call the top in aluminium price but increasingly worried that fund managers have started to offload their bullish exposure. Should the selling from funds accelerate, the minor support at $3,000 per tonne may not be enough to hold back the wave of selling. The key support though, lies at $2,700 per tonne which will set a stronger wave of selling.
All trades or trading strategies mentioned in the report are hypothetical and for illustration only and do not constitute trading recommendations.
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