SMM Morning Review – 2011/8/1 Aluminum Market

Risk aversion sentiment gradually grew after the White House and Republican leaders failed to reach an agreement during the debt talk on July 29th, which helped the US dollar index stand steady above the 10-day moving average during European trading hours. Later, the US Department of Commerce announced that US GDP increased at an annual rate of 1.3% in second quarter, a growth rate below the expected 1.8%. As a result, risk aversion sentiment quickly fell, and the US dollar index fell continuously to 73.741, down 0.58%.

Due to US debt default worries, LME aluminum prices fluctuated downward from the 5-day moving average on July 29th, but found strong support at USD 2,600/mt. Later weak US 2Q GDP data dragged down the US dollar index, which helped LME aluminum prices to rebound. LME aluminum prices finally closed below the 5-day moving average at USD 2,627.5/mt, down USD 17.5/mt or 0.66%.

As market expectations are positive towards the US debt talk, the US dollar index will rebound, which will in turn limit upward space of LME aluminum prices. Therefore, SMM expects LME aluminum prices to fluctuate between USD 2,600-2,650/mt on August 1st. Most active SHFE 1110 aluminum contract prices are expected to consolidate at the 5-day moving average and fluctuate between RMB 18,100-18,450/mt. As spot aluminum prices fell and capital pressure is relived at the beginning of August, more downstream buyers will purchase on an as-needed basis, and middlemen will also become more active, therefore, spot premiums are expected to be positive RMB 30-90/mt over SHFE current-month aluminum prices.