SMM Daily Review - 2011/8/9 Base Metals Market

Plunging global financial markets overnight dragged SHFE aluminum contract prices to gap lower for a third consecutive day by over 4% at RMB 16,510/mt on August 9th. All aluminum contracts fell to a stop at the beginning of trading, but soon reopened supported by buying at low prices and attempted to recover the gap. In the afternoon, with inflow of long capital, SHFE aluminum prices stood steady at RMB 17,000/mt and hit an intraday high of RMB 17,340/mt. SHFE aluminum prices closed slightly lower at the 60-day moving average RMB 17,265/mt, up RMB 155/mt or 0.91%. After SHFE aluminum prices rallied, the shorts exited the market, which attracted the longs to buy at lower prices with SHFE aluminum prices gaining despite falling of other metals prices. Positions of most active SHFE aluminum contract also rallied by 4,254 lots, which boosted market confidence at RMB 17,000/mt. SMM expects SHFE aluminum prices will keep struggling at the 60-day moving average in the short term while recovering previous gaps.

Trading prices of spot aluminum in Shanghai on August 9th were between RMB 17,570-17,610/mt, with premiums of positive RMB 120-150/mt over SHFE current-month aluminum prices. SHFE aluminum prices gapped lower for 3 successive days with slight rebounds later attempting to recover the gap, which boosted goods holders’ confidence to quote with high premiums. During spot trading hours, after SHFE aluminum prices climbed steadily, spot premiums slightly narrowed, attracting some downstream buyers and middlemen to purchase thereby lifting up market sentiment. In the afternoon, SHFE current-month aluminum prices accelerated the rising pace, which led spot aluminum prices to surge from the opening RMB 17,600/mt to RMB 17,750/mt. However, buying interest among purchasers turned significantly lower afterwards, with only few transactions below RMB 17,700/mt reported.