Buy Aluminium May expiry or accumulate Aluminium mini in June in MCX

As of Friday 23rd May 2014, 3 month forward LME Aluminum is seen trading at $1818/MT up by 2.70% from its previous close. We had suggested a bullish outlook on the metal in the last week and believe the same scenario may maintain in the next week too. 

There are several reasons for the metal to trade higher and a few prominent factors are as follows: 

A) Global Aluminum stocks which were at record high at 5.492 million tons in the beginning of 2014 has been continuously declining and in May as of now the total stocks stood at 5.233million tons a fall over 5% supporting the prices to rebound from record low since 2013. 

B) Producers are cutting smelting operations after prices declined amid rising costs. Aluminum on the LME fell 13 percent last year and in February touched the lowest since 2009. Oslo-based Norsk Hydro ASA this month said it would permanently close its Kurri Kurri plant in Australia. Earlier this year, Alcoa said it planned to shut a facility in Point Henry, Australia and curb capacity at two smelters in Brazil where producers are reducing output to the lowest in 12 years. 

C) Aluminum premiums are rising in Europe and Japan to a record levels in the recent time also helping the metal to move higher. We believe similar trend may continue in the short term by which prices may remain elevated. European spot aluminium premium rose to a record $390-405/MT, from $370-380/MT a week earlier. Spot ingot premiums in main Japanese port rose to an all-time high of $380-385/MT, up from $365-370/MT previous week. 

D) Aluminum buyers in Japan, Asia’s largest importer, are set to agree on a record fee next quarter as demand rode out a sales-tax gain amid falling global output.

 E) Fees in the U.S. and Europe climbing to a record high as financing transactions and waits to get metal from some LME-tracked warehouses keeping supplies unavailable to users. 

Strategy: Buy Aluminium May expiry or accumulate Aluminium mini in June at Rs. 103 and Rs. 104 respectively for a target of Rs. 107 and Rs. 109 while stop loss should be below Rs. 100 and Rs. 101.