Three reasons for supporting a bullish aluminium market in the short-term

Rising aluminium prices can present opportunities and risks for investors – but what are the main factors supporting a bullish market on LME aluminium and what is the impact on your investment decisions in the short-term?

Aluminium LME cash price rebounded after being down for two consecutive weeks at the end of August – but will it last? Get the latest base metals price forecast.

We are cautiously predicting a bullish sentiment toward aluminium prices in the short term. Several factors largely support the small but gradual rebound in aluminium prices. Still, the key drivers include Chinese policymakers issuing further monetary and fiscal stimulus to help stabilize the country’s property market and the wider economy.

In addition, the United States Federal Reserve’s pending price hikes may encourage the strong US dollar index to retrace lower and seasonal restocking activity could support our bullish sentiment in the short-term. Learn more.

1.       US dollar index to ease on aluminium market

There is a growing sentiment that the recent strength in the dollar must ease. US Federal Reserve Chair Jerome Powell has maintained hawkish rhetoric, signalling further hikes may be required to support the dollar and maintain a stable inflation rate despite data signalling slowing momentum. But if officials of the US Federal Reserve water down their hawkish rhetoric further opportunities could emerge for investors.

Markets will likely become increasingly volatile as trade volumes increase from the summer lull and the US labor market. Historically, September is the worst month for the major US indices, dubbed the “September Effect” by some investors.

2.       China stimulus to boost liquidity in aluminium markets

The general aluminium market has reacted negatively toward recent stimulus enacted by key Chinese officials. That could be about to change as state leaders ramp up efforts to boost liquidity and domestic confidence in advance of the 2024 Lunar New Year on February 10. One of the key drivers that could boost China’s primary aluminium market is the property-supportive policies with adjusted interest rates to incentivize consumers to buy homes.

We remain mildly confident about China’s economic recovery supporting the uptrend in aluminium prices. Learn more.
 

3.       Restocking activity higher aluminium prices

Year-end seasonal strength and restocking activity could emerge amid the attractive price point. LME aluminium inventories are predominantly (up to 80%) Russian, leaving very little non-Russian aluminium for lending purposes. However, fund managers trading the LME base metals remained bearish towards aluminium in August. The pause in selling supports our overall short-term bullish thesis. Should the LME aluminium price continue its rebound we anticipate that short position holders may start to cover more of their bearish exposure, which would support upward pressure on prices. Learn more.

In September, the SHFE aluminium price rebounded by more than RMB 2,500 per tonne from the year’s low of RMB 17,140 per tonne in late May. These rising aluminium prices are mainly due to insufficient stock accumulation during the consumption off-season.

We envisage tighter spreads and a potential inventory squeeze to play out as consumers scramble for metal amid a pick-up in restocking activity. Spot inventories will likely remain low ahead of expectations for increased consumption in September and October. As a result, more investors have entered the market, pushing aluminium prices higher.

To understand the complex market conditions influencing price volatility, download our monthly base metals price forecast, including the latest aluminium price forecasts.

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