The rally in aluminum futures, which resulted following U.S. sanctions against United Company Rusal Plc (MCX:RUAL), seems to find the price in overbought territory. Let us try to differentiate between the expected high levels of short supply during the upcoming years and the hard reality that every economic sanction that is supposed to harm the economy of the sanction-imposer.
Currently, aluminum price is reflecting an impression of more upside rallies. But what if we see a spurt in exports from China and a restructuring of Rusal’s operations or any attitudinal change in U.S. trade strategy when they find that sanctions will only hamper its own growth.
On analysis of the fundamentals of current supply and demand, what has changed is the outlook for a short supply of the metal in the near future. As for the metal's longer-term outlook, if we see demand rise, production, too, will increase.
I find that the aluminum futures are facing stiff resistance at $2535. I sense a steep downward move from current levels because the panicky bears look ready to shoot down this panic-driven rally.
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