Aluminum may start to rise due to supply shortages and increased demand

27 April 2023 150
Aluminum may start to rise due to supply shortages and increased demand

The price of aluminum went through a 5,9% decrease and fell from a $2,460 high over the past week. Metal has been following market trends in recent sessions. However, the fundamental background around aluminum is quite bullish. April is the peak season for Chinese industrial consumption of aluminum, and domestic stocks remain depleted. A shortage of metal could reverse the quotations. Aluminum is less dependent on Fed action. Nevertheless, hawkish policies could decrease the value of the metal, so a stop-loss is necessary to prevent the possible issues.

China's policy to stimulate the demand for automobiles could boost aluminum prices. As of April 20, aluminum bullion inventories in China's major markets stood at 906,000 tons. This is less than 60,000 tons from the previous week and is in line with a five-year low.

China's production problems create a supply shortage in the metal market. China, which accounts for just under 60% of the world's primary aluminum supply, increased production by 3.9% from the first quarter of 2022. However, the growth rate slowed sharply to 0.9% in March. China's aluminum production of 39.9 million tons last month was the lowest in a year.

New and restarted facilities couldn’t compensate for the decline in production in Yunnan province. The reduction in volumes was caused by the weather.

The aluminum industry uses hydropower, but it requires rain, and southern China is now experiencing its worst drought in decades.

According to the technical analysis, aluminum prices have fallen to the lower boundary of the short-term uptrend, which was formed in late March. We should expect a reversal attempt from the current aluminum price. Historically strong 0.5 Fibonacci level from the current correction wave will be the growth target. It corresponds to $2386. We will place a stop-loss on a downward breakthrough of this trend and updating of the April lows around $2,280.

Decrease in aluminum:

Take profit — 2386

Stop-loss — 2280

This content is for informational purposes only and is not intended to be investing advice.

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