Lower prices make aluminum more attractive for purchase

Aluminum prices continue to pull back from the two-month-high set last week at 2460. As indicated in the previous forecast, quotations are gradually approaching the range of 2330-2350, where the downward movement can turn around. Aluminum prices have enough prerequisites for growth despite the quite negative situation of the industrial metals market.

China, which accounts for slightly less than 60% of the global primary aluminum supply, has increased production of this metal by 3.9% in the first quarter of 2023. However, growth slowed down sharply to 0.9% in March. China's March aluminum output stood at a yearly low of 39.9 million tons.

Aluminum smelters in Guizhou and Sichuan provinces increased production slightly. However, the drought in Yunnan continues, and local smelters are worried about production cuts. Qinghai Province has published a plan for energy use during the summer peak in electricity demand. According to the plan, energy use by the aluminum industry is expected to be restricted, and it could cause problems with metal supplies.

The aluminum industry in China's southern provinces uses power generated by hydropower plants. However, they require a certain level of reservoir fill, and southern China is currently experiencing its worst drought in decades. Currently, industrial plants, including aluminum smelters, have been instructed to scale back operations to balance the power system.

By now, facilities capable of producing nearly 2 million tons of aluminum per year are idle. Further development of the situation depends on the weather in southern China. If metallurgical plants in Yunnan and other provinces are also restricted in the use of electricity, it could reduce aluminum supplies and support metal prices even more.

The area of the previous local highs — 2440 and higher will be the growth target after the price reversal.

We may offer you the following option of trading strategy: 

Buy aluminum in the range of 2350. Take profit — 2440. Stop-loss — 2320.

Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.