Aluminium prices rising slowly but steadily, should you invest?

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Published: June 29, 2016 1:32:50 PM

aluminium pricesExcess aluminum production in China is damaging the prospects of aluminum producers in the rest of the world

Aluminum price increases this year have been minimal compared to what we’ve seen in steel prices. Even when metals prices were rising across the board in the first quarter, aluminum was the laggard as oversupply still kept investors away from buying it and construction demand remained tepid. However, the metal is rising slowly but steadily as investors see an opportunity to buy aluminum when prices fall short-term. Thanks to Chinese stimulus that construction demand has shot up and aluminum prices with it. A recovery in demand is a key factor supporting aluminum prices this year. China unleashed a renewed government stimulus in the form of credit expansion and infrastructure building in December, which has — at least momentarily — improved the demand side of the equation for industrial metals.

Excess aluminum production in China is damaging the prospects of aluminum producers in the rest of the world, purely because of the size of China’s massive aluminum industry. China is the world’s largest producer accounting for 54.4 per cent of global primary aluminum output in April.

China has been exporting excess production of both steel and aluminum in the form of semi-manufactured products. The development of the global automotive industry has a positive impact on aluminum prices. The current perspectives of the global automotive industry assume a significant growth in aluminum demand in the mid-term. The biggest aluminum consumer is the automotive industry, with the share of 27 per cent in 2014. We think that the growth in demand for aluminum in the automotive industry in the next few years will be provided by the growth of sales and production of cars in developing economies, as well as due to the need for a growing incorporation of aluminum into crucial car parts to meet increased fuel economy requirements.

Trade figures this year showed China’s relatively strong appetite for aluminum. Higher demand means exporting less as Chinese companies are consuming more aluminum domestically. China’s exports of unwrought aluminum and aluminum semis were 420,000 metric tonnes in May. From January to May, exports are down 7.9 per cent compared to the same period last year.

In MCX, Aluminum on daily chart had taken support on its 200 day moving average around Rs 102.30 per kg and rallied till Rs 110.45 per kg. It failed to cross its previous swing high of Rs 111.65 per kg and now is trading around Rs 108.80 per kg. Fresh breakout can come above Rs 112 per kg. It seems like aluminum may first come around Rs 106 per kg. If it trades below that, that we can expect testing again the support of 200 day moving average around Rs 102.50 per kg. If Aluminum stays above Rs 106 per kg then one should initiate long position with Rs 106 per kg as its stoploss and target of Rs 111.50 per kg. Investors for long term horizon should wait in aluminum as it is trading in the broad range. Breakout above Rs 112 per kg will give substantial return for long term investors. Aluminum prices are acting strong, thanks to a recovery in demand, a weak dollar and improved sentiment in commodity markets.”

The metal is the most widely used non-ferrous metal. Some of the many uses for aluminium metal are in transportation (automobiles, aircraft, trucks, railway cars, marine vessels, bicycles, spacecraft, etc.), packaging (cans, foil, frame of etc.), food and beverage containers, because of its resistance to corrosion and in construction.

(The author is director at Tradebulls)


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