Aluminum, as well as other commodities, has shown a strong growth in recent weeks. The key driver for the price surge appeared to be China's reopening. As a result, it is expected that demand for aluminum will rise.
Besides increased demand for the metal, its production in China is going to keep rising as well. The country's share in global aluminum production is high, amounting to 58%. China reported its output growth as early as December.
It is also worth noting that gas prices in Europe and the U.S. have dropped, making it possible to restart energy-intensive aluminum plants. To recap, aluminum facilities are the largest consumers of electricity in the world. Their share accounts for 1% of all electricity produced per unit and 7% of the energy consumed by all industrial plants globally. That is why a surge in energy prices forced some plants to suspend operations in 2022.
The International Aluminium Institute (IAI) estimated that global primary aluminum production in 2022 exceeded its previous year's level by 2%. Thus, the industry managed to hit a new high, despite the energy crisis, which prevented production from reaching its full capacity.
China contributed the most to the growth of aluminum output. Local companies produced around 3.47 million tons of metal in December 2022. This figure is 11.6% higher than in December 2021. This year-end spurt brought annual production to 40.39 million tons, surpassing the 2021 performance by 4%.
Based on the technical analysis, aluminum moves in an uptrend. There was a false downward break of this trend in January, but the price returned to the range within a couple of days. The aluminum is now at the upper limit of the trend, while the RSI is overbought on the daily timeframe. This overbought was last recorded when aluminum posted multi-year highs.
So, it is possible to open short positions with the aim to move down to the lower limit of the trend, i.e. the level of 2,500$. Stop-loss can be placed when the trend reverses upward near the $2,710 level.
Aluminum is likely to decrease:
Take profit - 2,500
Stop-loss - 2,710