Yesterday aluminum quotes showed a strong growth by 2.5% and reached the highest levels since the beginning of March. Same as at the beginning of last month, the level of 2430 stopped the growth wave, and today at the trading start there is a corrective pullback. The fundamental situation on the aluminum market is in favor of continuing growth in metal prices.
The strong rise in aluminum prices yesterday was supported by positive data on the Chinese economy in the first quarter of 2023. Although the growth of industrial production was slightly worse than forecasted, in contrast to the dynamics of GDP, this did not spoil the overall picture of the gradual recovery in the Chinese economy. At the same time, aluminum production increased by only 3%, which may not be enough to meet industry demand.
Power outages in Yunnan and some other southern provinces remain the main problem for aluminum production in China. They can cause serious metal shortages. Lower production levels could outweigh the relatively weak growth in consumption and lead to a significant rise in aluminum prices both in China and on the global market.
The closure of European steel plants due to high electricity prices and the refusal to import aluminum from Russia increase the probability of a global deficit. Shanghai Futures Exchange (SFE) aluminum inventories have fallen by 12% over the last month. London Metal Exchange (LME) metal inventories decreased by 5% over the last 2 months.
Bank of America analyst Michael Widmer predicts aluminum deficit due to power shortages for China's steel plants, as well as increased demand for the metal. According to Widmer's forecasts, the aluminum market expects a deficit of 1.53 million tons this year. In 2024, the metal shortage will grow to 1.93 million tons.
To open long positions, it is worth to wait for a pullback in aluminum prices closer to the 2330-2350 range. In future the growth target will be a return to the local maximum of 2430. As long as the price does not consolidate below the 2300 level, the uptrend will remain prevailing.
The following trading strategy option can be suggested:
Buy aluminum when the quotes fall into the 2330-2350 range. Take profit – 2430. Stop loss – 2300.
This content is for informational purposes only and is not intended to be investing advice.
