Aluminum repeats the dynamics of commodities, which in recent weeks are concerned about the banking crisis. Meanwhile, volatility in aluminum prices is compressing, indicating a potential strong move in the metal.
Economic growth forecasts are worsening, which directly affects demand for basic commodity metals.
Founder and managing director of DoubleLine Capital Jeffrey Gundlach predicts a recession in the U.S. already this year. A sharp rise in the yield curve of U.S. government bonds is a historical predictor of an economic downturn.
Gundlach recently predicted a recession in the 4th quarter of 2023. Now he thinks that it will happen earlier. The analyst is most worried about geopolitical tensions in the world.
The problems with demand are confirmed by the partial closure of factories, for which the production of aluminum is becoming unprofitable. In the medium term, this could be a bullish factor, as aluminum supply will decrease. However, now it confirms the economic slowdown and the beginning of the recession.
Portland, a facility of the U.S. company Alcoa, is reducing its aluminum production operating capacity by up to 75%. The Australian-based plant will now produce 268,500 tons per year instead of the maximum 358,000 tons.
The decision to reduce production capacity was influenced by instability in the global aluminum market. In addition, Portland is failing to supply its production with core anodes, which would keep production volumes at an operational level. Alcoa produces these anodes themselves, but they are not enough for full functioning. This was reported by the Financial Review.
According to the technical analysis, aluminum is at its support level of $2,260. At the same time, bounces from this level are becoming faded, which forms a potential triangle pattern. These dynamics also confirms that the bulls are weak and a break through this level is a matter of time. Since the volatility in the instrument has already faded, it means that a breakdown of the level should happen very soon. The Fed meeting could be a trigger for this scenario.
The 1.618 Fibonacci level of the entire rebound wave could be the downside target, which corresponds to the level of $2,240. Stop-loss can be set at a breakdown of the triangle upwards and a move above the 0.5 Fibonacci level near the price of $2,290.
Decrease in the price of aluminum:
Take profit – 2240
Stop-loss – 2290
This content is for informational purposes only and is not intended to be investing advice.
