Aluminium traded negative in the early part of May, but showed some recovery towards close. Primary Aluminium is majorly exported by Russia and it has contributed to a great extent in the production level.
Rising international demand for Aluminium has led to increase in its prices mainly in Western Europe, thereby forcing companies to make a shift to low cost producing countries where labor and energy are available at a low cost.
The Aluminium markets were in surplus of 298000 tonnes during first quarter of 2010 and are expected to remain at the higher end, during the second quarter also. Furthermore, recent increase in rates of electricity for manufacturing sectors including aluminum production could threaten closure of up to 2.7 million tons of capacity, which will increase production costs by up to $110/ton.
Also, demand for aluminium will take an up turn and is expected to exceed supply as OECD smelters are likely to go on momentum of full capacity. Aluminium is getting stuck between two dynamics viz. term financing that is keeping LME registered metal back from the markets and large volumes which are held in off market stocks.
This may not improve in near short term, due to zero interest rate environments. Elsewhere, there has been a drastic shift in Aluminium production, where emerging countries like China, Asia and the Middle East are emerging as net exporters of primary Aluminium.
On technical charts, the light metal seems to be shaping up for a relief rally after the recent fall. Market has taken support at crucial level of around Rs.92.40/kg on closing basis.
This is a multiple fibonacci support cluster (a confluence point of numerous fibonacci retracements). Hence trading advice would remain to trade for short bursts on the long side. The word of caution would be that the market behaviour is likely to remain choppy as is normally the case in a counter trend rally.
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