SMM Morning Review – 2011/7/22 Aluminum Market

Hong Kong and Shanghai Banking Corporation Limited (HSBC) announced on July 21st that China’s PMI in July fell below 50% and hit a 28-month low. This indicates China’s manufacturing activities are cooling in 3Q and consumption will weaken, which dampened investor confidence. Later during the day, mixed initial unemployment claims last week, June leading indicators and May house price index were released in the US. Nevertheless, market confidence was boosted by a bailout plan reached during the European Union Summit for debt-ridden Euro-zone countries. As a result, the Euro broke through the moving averages and hit 1.4437. The US dollar index was pressed below 74 in response, and rebounded during the tail of trading to close at 74.038, down 0.85% while hitting a 45-day low.

During European trading hours, LME aluminum prices initially fell below USD 2,500/mt but only hit USD 2,499/mt. LME aluminum prices quickly rebounded after a bailout agreement was reached during the European Union Summit, and finally closed at USD 2,536/mt, up USD 1.3/mt or 0.05%. Total positions increased by 10,226 lots to 674,938 lots.

SMM expects LME aluminum prices to fluctuate between USD 2,520-2,570/mt on July 22nd. Most active SHFE 1110 aluminum contract prices are expected to consolidate at USD 17,500/mt and fluctuate between RMB 17,450-17,700/mt. Spot premiums are expected to be positive RMB 50-100/mt over SHFE current-month aluminum prices. Market transactions will remain limited.