Aluminum ended last week at its lowest levels since January 9. The oversold condition on the technical indicators has already been observed, but it was not enough for a rebound upwards. However, aluminum could not overlook stronger fundamentals that caused a 3% upward spurt yesterday. And the potential for this uptrend is far from being over.
China served as the source that triggered a surge in aluminum prices. Reduced production was recorded at all aluminum smelters in Yunnan Province. Capacity utilization has already been slashed by 20%, and there are plans to reduce it further to the level of 35-42% due to the power shortage. The latest estimates show that the growth rate of aluminum ingot stocks in China's domestic market has slowed down compared to the previous indicators, as have the stocks of aluminum billets.
Renewed concerns about aluminum production turn out to be even more important given that it has already fallen 0.6% in January. But China, having a huge 58.9% share of global aluminum output, suffered a more significant decline of 1.1% last month. This is unlikely to bring a global supply shortage, but stocks could definitely go down, thus keeping aluminum prices up.
Seeing potential supply disruptions, the Argentine authorities announced a ban on exports of aluminum, along with copper and scrap metal until the end of 2024 due to a shortfall in the domestic market. Goldman Sachs experts have already ameliorated their average aluminum price outlook this year to $3125 per ton, i.e. 30% higher than in 2022.
New upside targets for aluminum lie at the levels of 2485 and 2520. The Stochastic indicator confirms a buy signal.
The following trading strategy can be suggested:
Buy aluminum in the 2440-2460 range. Take profit 1 - 2485. Take profit 2 - 2520. Stop loss - 2415.
Traders may also use Trailing stop instead of fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
