Aluminium, an energy intensive metal has been adversely impacted by downward spike in crude oil prices. Aluminium prices have been unable to move above US$2,000/ton during the past month, then breaching the psychological levels of US$1,900/ton during this week. Initially, market participants perceived that price levels below US$2000/ton could invite more production cuts. Conversely, global primary aluminium output is expanding rapidly as spot premiums still remain lucrative for the producers, offsetting the price decline. In addition, there has been no concrete production cutback by the Chinese producers, considering such low Aluminium prices. It seems that Chinese producers are still comfortable with their production margins at such price levels. On price front, Aluminium prices are expected to witness a downward trajectory in the short term, as bulls will remain dissuaded by expanding global supply and bearish energy prices.
LME Aluminium – breach of key trendline support would invite further weakness
MCX Aluminium – H-S pattern breakdown could pave way for further weakness
Source: Metastock, India Infoline Research
Ever since the break below the psychological US$2,000/ton mark, LME aluminium prices have found it difficult to gain foothold amid fluctuating crude oil prices. Last week’s breakdown below the crucial support of US$1,950/ton which also coincides with the 161.8% Fibonacci level has validated the long term trend line breakdown and calls for further weakness to follow. Potential downside target is seen at US$1,700-1,780/ton, while US$2,000-2,075/ton acts as a stiff barrier from the medium to long term view point.
In MCX, aluminium prices have been finding strong resistance around Rs112/kg and are currently in the verge of breaking Rs105/kg, which would initiate a complex head and shoulder pattern on weekly charts. Initial target for this pattern is identified close to Rs100/kg which I also the 6.58% Fibonacci level, while potential do exists for a test of Rs96.5/kg as well.
Price Outlook & Strategy