The point about oversupplies in both world aluminium and Chinese aluminium is well made. As a result of this oversupply, aluminium price remains depressed, and the market is bearish. However, one also has to remember a lot of this bearishness comes from macro uncertainties, not from fundamentals alone. It is our belief that aluminium pricing is undervalued right now.

Perhaps it can be looked at from two perspectives; one is from a sentiment perspective, another from model-driven valuation. Our model on sentiment detects a large gap between current aluminium pricing and a robust historical data driven model; this gap implies that sentiment is overly bearish right now. Our second approach applies a model-based valuation method. The result from our modelling shows more interesting fluctuations. Our results show that the market has been undervalued for almost all months of 2013, and we expect this misalignment between fundamentals and price to continue. This can only be salvaged by stronger demand side recovery.

In July, we detected a undervaluation of 95.4USD/t for aluminium on the LME, based on monthly data points. August data points will likely tell the same story, though it really is a matter of time before the gap between sentiment and fundamentals starts to close.

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