Aluminum finished June and the whole second quarter, renewing multi-month lows. The metal prices fell to $2130 per ton on Friday to the last September level. Although by the end of trading most of the drawdown has been bought back, sentiment in the aluminum and other industrial metals markets remains rather pessimistic.
The main reason for the negative dynamics of metal prices is weak economic growth in China. Late last week the National Bureau of Statistics reported a continuing decline in China’s manufacturing activity. The manufacturing PMI rose slightly to 49 points from 48.8 but still remains in recession territory, below 50 points.
Today's data from the private agency Caixin, while slightly better than the official figures, also indicate that the world's second economy has lost its growth momentum. The manufacturing PMI fell to 50.5 from its May level of 50.9. China's private companies reduce recruitment as they grow increasingly concerned about sluggish market conditions and weak demand for finished goods from overseas buyers.
A survey of companies on business prospects over the next 12 months showed a deterioration in sentiment almost to the level of last October, when COVID restrictions were not lifted. Only 17% of China's manufacturing sector companies forecast business growth in the next 12 months.
An increase in supply of aluminum could also put pressure on the metal prices. Stocks in China are now near their lowest level in 5 years, but the resumption of aluminum production in Yunnan and some other regions of China could change the situation. Due to growth in domestic production and imports, Chinese aluminum inventories are going to rise in the beginning of July.
While aluminum prices are below the level of 2200, the main scenario is a descent to new local lows. The first target is a return to 2130, and then the level of 2100 could be tested.
The following trading strategy can be suggested:
Sell aluminum in the range of 2160–2170. Take profit 1 — 2130. Take profit 2 — 2100. Stop loss — 2200.
This content is for informational purposes only and is not intended to be investing advice.
