Gains in aluminium supported by expectations of Chinese stimulus

Aluminium yesterday increased by 0.73% to close at 205.65, buoyed by expectations that China will provide stimulus to bolster economic development and restore its struggling real estate market. Following a report by state-owned media, investors also anticipated China will significantly reduce banks’ reserve ratios and interest rates in the second half of this year to assist the economy.

At the end of May, China’s working aluminium capacity increased to 40.92 million mt, and domestic production of aluminium increased 1% year over year to about 3.47 million mt in May, primarily due to the restart of production in Guizhou and Sichuan. Last month, smelters continued to produce a significant amount of molten aluminium.

In May 2023, the Caixin China General Composite PMI increased from 53.6 to 55.6. With a faster rise in output across both the manufacturing and service sectors, with the latter witnessing a quicker rate of rise, this was the fifth consecutive month of growth in the private sector activity and the steepest pace since December 2020. The Caixin China General Services PMI rose from 56.4 in April 2023 to 57.1 in May 2023. However, as the post-COVID recovery proceeded, it was the second-fastest increase in services activity since November 2020 and the fifth successive month of growth.

Technically, the market is under short covering because open interest has decreased by -6.36% to settle at 3212 while prices have increased by 1.5 rupees. Currently, aluminium is receiving support at 204.2, and a move below that level could result in a test of the 202.6 level. Meanwhile, a move above 207.2 could result in a test of the 208.6 levels.

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