SMM Morning Review - 2011/10/13 Aluminum Market

Expectations for China to loosen monetary policies towards medium-to-small businesses led to a strong rebound in Shanghai Composite Index on October 12th, with the index ending with the largest daily gain of the year. Investors’ optimism towards the European debt crisis also strengthened on expectations the EFSF expansion and bank recapitalization in Europe will be completed during the meeting of European finance ministers on October 23rd. The US Fed’s meeting minutes showed that easing monetary policies of the US will not change, dragging the US dollar index to below 77. LME metals gained overnight with stock prices.

The many positive news helped LME aluminum hit USD 2,270/mt, a new monthly high overnight. However, without any material progress on solving the European debt crisis, the cautious sentiment still existed among investors, with resistance at the 20-day moving average remaining strong. The metal finally closed at USD 2,245/mt, up USD 21/mt or 0.94%, after trimming gains at the tail of trading. Total positions increased 8,567 lots to 841,033 lots.

We believe investors’ optimism is not sufficient to help LME aluminum price further climb, and expect the metal to struggle at the 20-day moving average and fluctuate between USD 2,220-2,270/mt during today’s trading. The most active SHFE 1112 aluminum contract is expected to open higher at RMB 16,700/mt and fluctuate between RMB 16,700-16,850/mt. Spot premiums over the SHFE current-month aluminum price are expected to narrow to near zero as the current-month contract is about to change. We expect spot aluminum prices to have discounts/premiums within RMB 20/mt over the SHFE current-month aluminum price today.