SMM Morning Review – 2011/7/29 Aluminum Market

The Economic Sentiment Indicator (ESI) released on July 28 by European Commission was 103.2 in July, weaker than expected and down from previous figure, indicating Euro zone economy is not likely to recover in the short term impacted by debt woes. Later during the day, US Department of Labor announced new unemployment claims fell unexpectedly to 398,000, the lowest since April 2nd, indicating employment market was improving. The US dollar index surged to the 10-day moving average during European trading hours, but fell at the tail of trading due to cautious inventor sentiment caused by US debt talk dilemma. The US dollar index finally closed at 74.171, up 0.09%.

LME aluminum prices fell and later fluctuated overnight. During European trading hours, after the US dollar index climbed, LME aluminum prices fell to hit USD 2,625/mt, but found strong support at the 5-day moving average. At the tail of trading, LME aluminum prices rose supported by better-than-expected US employment data, and finally closed at USD 2,645/mt, up 0.25%. Total positions increased by 15,489 lots to 702,744 lots.

As debt woes in Europe and the US will limit upward space of LME aluminum prices, SMM expects LME aluminum prices to test the 5-day moving average and fluctuate between USD 2,620-2,670/mt on July 29. Most active SHFE 1110 aluminum contract prices are expected to open slightly lower and fluctuate between RMB 18,250-18,550/mt. As today is the last trading day of July, wait-and-see sentiment is strong among purchasers, and spot premiums are expected to fall to between negative RMB 20/mt and positive RMB 50/mt over SHFE current-month aluminum prices. Goods holders will actively sell goods for capital at high prices.