Shanghai Metals Market Morning Review - 2011/11/1 Aluminum Market

Japan’s US dollar buying move to curb appreciation of the Japanese Yen and investor doubts towards settlement of details for the EU deal struck at the latest EU Summit had forced the euro to erase previous gains, which in turn pushed the US dollar index to above 76.5% with a nearly 2% gain. Base metals dipped as a result.

LME aluminum hit an intraday low of USD 2,182/mt overnight amid profit-taking activities of longs, but later recovered the 30-day moving average supported by bargain-hunting. The metal finally closed at USD 2,219/mt, down USD 26/mt or 1.16%.

The space for base metals to rebound has been limited after the US dollar index rebounded back above 76. SMM expects LME aluminum to meet resistance at the 5-day moving average and fluctuate between USD 2,180-2,230/mt today. The most active SHFE 1201 aluminum contract is expected to open lower near RMB 16,300/mt and test support at RMB 16,200/mt as investors wait for the latest official PMI data. The contract may fluctuate between RMB 16,200-16,450/mt during today’s trading.

Downstream demand for spot aluminum will remain weak today as capital pressure will not significantly ease on the first trading day of November. Market supply will stay excessive, which will press down spot aluminum prices. Spot aluminum is expected to be traded at discount of 10/mt to premiums of RMB 40/mt over the SHFE current-month aluminum price.