Aluminum prices are struggling to rally further following last week's signs of CTA buying exhaustion, Senior Commodity Strategist Daniel Ghali note.

Demand sentiment starts to decline again

“Under the hood, demand sentiment embedded within the cross-section of commodities prices has started to decline once again, following a brief recovery off the lows marked by the recent turmoil in August.”

“Supply risk premia has been an insulating force for Aluminum and certainly supported the recovery in prices, reflecting risks to European smelter output associated with higher energy prices. But our gauge of supply risk premia also points to the first signs of notable pressure since Ukraine's incursion in Russia.”

“While CTA flows are likely to remain muted over the next week barring a large downtape in prices, continued pressure from demand sentiment or easing supply risk premia could eventually catalyze renewed selling activity in a big downtape. Barring this catalyst, however, the balance of risks suggests LME3m prices may remain pinned to $2500/t in the near-term.”