Aluminium prices experienced a modest increase yesterday, closing up 0.35% at Rs 317.6, bolstered by supply-side apprehensions following China’s attainment of the government-mandated production capacity limit. Despite a significant increase of 29.2% in inventories at Shanghai Futures Exchange warehouses compared to the previous week, the downside appears constrained as overarching global fundamentals indicate a persistent tightness in the market.

Prices previously encountered pressure due to a stronger U.S. dollar and diminishing concerns regarding potential U.S. tariffs on aluminium, while increasing inventories at significant Japanese ports indicated a comfortable near-term supply situation. On a global scale, the interplay of supply and demand continues to exhibit supportive characteristics. In October, the primary aluminium market experienced a deficit of 108,700 tons, contributing to a cumulative shortfall of 955,500 tons for the first ten months of the year, driven by consumption outpacing production.

Supply risks remain elevated as a result of elevated energy costs, operational disruptions, and difficulties in sourcing bauxite, leading to the suspension or limitation of smelting operations in areas such as Iceland, Mozambique, and Australia. In China, smelters’ initiatives to increase capacity abroad, especially in Indonesia, persistently encounter regulatory and cost-related challenges. In December, China experienced a resurgence in aluminium imports, whereas the growth of domestic production continued at a moderate pace.

From a technical perspective, the market is experiencing short covering, as evidenced by a 5.09% decline in open interest coupled with a slight increase in price. Aluminium currently finds itself with immediate support at Rs 316.9; a breach below this level would reveal further downside potential at Rs 316.3. On the upside, resistance is identified at Rs 318.4, and a sustained movement above this level could challenge Rs 319.3.