SMM Morning Review – 2011/7/12 Aluminum Market

On July 11, as the debt crisis in the Euro zone further spread, and discrepancies still existed for the Greek bailout plan, default risks in the area rose again. Meanwhile, following Portugal, Italy also fell into the debt whirlpool. As a result, the Euro plummeted overnight below 1.40 due to heavy debt burden in the area. As risk aversion sentiment grew, the US dollar index climbed to 76 .156, a new high since May 25. It finally closed at 75.986, up 1.17%. Meanwhile, as weak economic data in the US and China dampened consumption growth, investors’ risk aversion sentiment further grew, with all US stock prices and commodities prices falling.

LME aluminum prices plummeted 2% for two consecutive days and fell below the USD 2,500/mt level, hitting a new low of USD 2,464.8/mt since March 16. During the tail of trading, LME aluminum prices rebounded and finally closed at USD 2,482/mt, down USD 52.5/mt or 2.07%. Total positions increased by 439 lots to 685,190 lots.

SMM expects LME aluminum prices to fluctuate between USD 2,460-2,500/mt on July 12. Most active SHFE 1109 aluminum contract prices are expected to fluctuate between RMB 17,270-17,360/mt. Spot premiums are expected to be positive RMB 30-80/mt over SHFE current-month aluminum prices. Downstream purchases will be limited given the low-demand season, and middlemen will be cautious while being bearish toward aluminum prices. Market sentiment is expected to remain muted.