Aluminium market rises on short covering, open interest drops 17.09%

Aluminium settled up 1.96% at 98.90 as trader eyed for possible government support in China to help stem an industry downturn that has pushed prices to more than six-year lows. Meanwhile Manufacturing activity in China hit a three-year low in November, an official survey showed, supporting the case for more accommodative policies. A private survey showed November manufacturing contracted at a slower pace than in October. Both metals have been hurt by the severe slowdown in China's sector, and have been unable to capitalise much on planned output cuts.

Also support seen after the update that State Reserve Bureau buying of metals and/or government investigations of short positioning, would in our view at best temporarily support metals prices, potentially providing a selling/producer hedging opportunity over the coming month. Indeed, ultimately, to the extent these measures are implemented in order to support jobs, this supports Chinese metals output, which is ultimately bearish for prices. Lastweek Aluminum prices recovered while US metal futures jumped 0.61% on the week, as the news that revealed the stocks fell 7,950 tonnes to 2,945,850 tonnes supported prices going up at the London Metal Exchange.

Meanwhile, with the other metals being under substantial selling pressure over the recent months amid a stronger US Dollar and weak growth in emerging markets that continue to be the dampeners, the future jump in prices of aluminum remains quite improbable. Technically market is under short covering as market has witnessed drop in open interest by -17.09% to settled at 3900 while prices up 1.9 rupee, now Aluminium is getting support at 97.4 and below same could see a test of 95.7 level, and resistance is now likely to be seen at 99.9, a move above could see prices testing 100.7.