Aluminum Seen Riding for Fall as Chinese Speculators Pile In (Bloomberg News – April 26, 2016)

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After steel comes aluminum. Futures traders in China have flocked to the lightweight metal used in beer cans and car parts, stoking a rally and setting the market up for a potential slump in the second half as smelters fire up new or idled smelters.

Aluminum is trading around a 10-month high on the Shanghai Futures Exchange after volume more than quadrupled in four days to about 1.04 million contracts on Monday, the most since December. That echoes the performance of steel reinforcement bar last week, when prices rose 20 percent in four days as trading ballooned.

While strong demand and tight supplies in the first quarter drove up aluminum futures, the risk is growing that prices will climb too far, according to analysts at CRU Group, AZ China Ltd. and Bloomberg Intelligence.

“There’s momentum building on the Shanghai exchange even though the fundamentals are not strong enough,” Eoin Dinsmore, a London-based aluminum consultant at CRU Group, said by phone on Monday. “The higher price action is going to more than undo any improvement in fundamentals.”

Restocking Cycle

Raw materials used in property and manufacturing in China have rallied as a rebound in construction coincided with low inventories after weaker production at the start of the year.

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