Aluminium prices on the Multi Commodity Exchange (MCX) are approaching six-month highs, despite a slight dip in Wednesday's trading session. The September contracts for aluminium traded at Rs 259.50 per kg, down 0.90% on the day, but the overall trend remains bullish due to growing supply concerns.

Supply Constraints Fuel Price Rally

The recent surge in aluminium prices can be attributed to several factors:

1. Declining LME Stocks: London Metal Exchange (LME) primary aluminium stocks have seen a sharp decline, falling by nearly 100,000 tonnes to 375,000 in just the first third of the month. This significant reduction is driven by increased speculative positions and rising physical demand.

2. Chinese Production Limits: China, the world's largest aluminium producer, faces potential supply growth constraints due to the country's annual production limit of 45 million tons. This cap could further tighten global supply.

Technical Analysis and Trading Strategy

Aluminium has shown strong recovery from its August lows of Rs 253.75, currently trading above both its 50-day and 200-day moving averages. This technical positioning suggests a continued bullish trend in the near term.

For traders looking to capitalize on the current market conditions, analysts recommend the following strategy:

• Accumulation Zone: Consider buying on dips towards Rs 256-258 per kg
• Stop Loss: Place a stop loss below Rs 252 per kg
• Target Levels: Aim for upside targets of Rs 266 and Rs 268 per kg

This strategy offers a potential return of up to 4.00% based on current price levels.

Market Outlook

While the slight dip in Wednesday's trading suggests some profit-taking or short-term consolidation, the underlying fundamentals of tight supply and increasing demand continue to support a bullish outlook for aluminium prices.

Investors and traders should closely monitor global supply dynamics, particularly any changes in Chinese production or further drawdowns in LME stocks, as these factors are likely to play a crucial role in determining the metal's price trajectory in the coming weeks.

As always, market participants are advised to conduct their own research and consider their risk tolerance before making investment decisions in the volatile commodities market.

Aluminium prices on the London Metal Exchange (LME) have marked their longest winning streak in over a year, climbing for the seventh consecutive session. This sustained rally has pushed the benchmark metal to its highest level since March, underlining the current strength in the industrial metals market.

Price Movements

The light metal reached a peak of $2,705.00 per ton during the trading session, before settling at $2,694.50 per ton. This represents a significant uptick from recent levels and reflects growing investor confidence in industrial metals.

Factors Driving the Rally

Several factors are contributing to the bullish sentiment in the aluminium market:

1. Federal Reserve Policy Anticipation: Investors are keenly awaiting the Federal Reserve's policy decision. The market appears to be pricing in expectations of potential monetary easing.

2. Dollar Weakness: Growing anticipation of a more dovish Fed stance is putting pressure on the US dollar. A weaker dollar typically supports higher commodity prices, as it makes dollar-denominated metals more attractive to holders of other currencies.

3. Supply Concerns: A surge in inventory withdrawal requests has raised concerns about aluminium supply, further supporting prices.

4. Broader Market Sentiment: The rally in aluminium prices is occurring alongside rising Asian equities, indicating a generally positive mood in financial markets.

Other Industrial Metals

The positive sentiment is not limited to aluminium. Other base metals on the LME are also experiencing gains:

• Copper
• Zinc
• Nickel

These metals have all posted increases, suggesting a broad-based rally in the industrial metals complex.

Market Outlook

While the current trend is decidedly positive, market participants will be closely watching the Federal Reserve's announcement for cues on future monetary policy. Any shift in interest rate expectations could have significant implications for the US dollar and, consequently, for metal prices.

The sustained rally in aluminium prices, coupled with supply concerns and broader market optimism, paints a picture of a metal market that is currently finding strong support. However, investors and industry players should remain vigilant to potential shifts in macroeconomic conditions and policy decisions that could impact this trend.