Commodity Call. Aluminium stuck as other metals rebound

Aluminium prices are under pressure. Spot aluminium prices on the London Metal Exchange (LME) fell to a six -year low of $1,452 per tonne last week and are currently at $1,459.75.

The metal has tumbled 8.6 per cent in the last two weeks. The aluminium futures contract traded on the Multi Commodity Exchange (MCX), which moves in tandem with the LME spot price, has tanked over 7 per cent over the same period to ₹95.4 per kg.

Aluminium has been a clear under-performer among the major metals.

Out of the six metals (aluminium, copper, zinc, nickel, tin and lead) in the LME Metal Index, aluminium is the only metal that has been in the red in the past month, down 7 per cent.

The prices of the other five metals have surged between 2 per cent and 8 per cent over the same period.

While the threat of supply disruption following the production cuts by major producers has helped metals like zinc, aluminium price has been dragged down by China — the world’s largest producer.

Latest data from China show that the primary aluminium production has increased by 12 per cent this year so far until September.

News reports also suggest that the supply of aluminium products and unwrought aluminium from China has also increased by 18 per cent this year.

At a time when the global economy is struggling with slow growth and weak demand, China adding to the supply glut is adding fuel to the fire for aluminium prices.

While the excess supply scenario is expected to keep the metal price under pressure, on the charts, aluminium prices are poised now near a very crucial support level. Whether prices break down or reverse higher from this support is going to decide where the metal is headed in the coming weeks.

The bounce back of the LME Aluminium spot price from the low of $1,475 recorded on August 24 failed to break above $1,600 decisively. The spot price faced strong resistance near $1,630 and had failed to break above the $1,600-$1,630 resistance zone in its several attempts made since September. The price tumbled below $1,500 in the past week, which keeps the overall downtrend intact.

However, a very crucial long-term support is near current levels at $1,450. The recent fall in the last few weeks has increased the danger of the price breaking below this support in the coming days. Such a break can take the price lower to $1,350 and $1,330.

On the other hand, if the spot price manages to reverse higher from this support at $1,450, then the spot price can remain inside the $1,450-$1,600 range for some time. Only a strong break and a decisive weekly close above 1,630 will turn the outlook bullish.

On the domestic front, the MCX-Aluminium futures contract has recorded a strong break and a decisive weekly close below the psychological ₹100 level for the first time in the last five years. Technically, this is a major bearish signal. Inability to rise past ₹100 in the coming days is going to be a big threat for the contract. There is an important long-term support at ₹92.5. A strong break below it will increase the danger of the contract tumbling to ₹87.5 and ₹85 in the coming weeks.

On the other hand, a reversal from ₹92.5 could trigger a corrective rally towards ₹100. But the downside pressure will ease only if the contract records a strong break above ₹100.

The outlook is bearish. However, the possibility of a near-term corrective rally to test the immediate resistance at ₹100 is open. The 21-day moving average is also poised near this psychological resistance.

So a rally to ₹100 is more likely to encounter selling pressure. A reversal from this resistance can take the contract lower to ₹92.5 in the coming days. A further break below ₹92.5 can target ₹90 there after.

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