SHANGHAI, May 27 (SMM) -- LME base metals prices fluctuated narrowly last night. LME aluminum prices opened at USD 2,040/mt, with the highest level and the lowest level at USD 2,056/mt and USD 2,002/mt, respectively, and finally prices ended at USD 2,002/mt, down USD 16/mt compared with the previous trading day, or down 0.79%. Total trading volumes reported 136,416 lots, and total positions were 721,686 lots, up 3,214 lots. LME aluminum inventories declined slightly by 3,600 mt to 4,570,150 mt. 

The US Department of Commerce announced on Wednesday that the US new home sales in April rose by 14.8% to an annual rate of 504,000 units from March levels, much higher than previous forecast of 430,000 units, setting a record high since May 2008, while new home sales in March were revised to 439,000 units from 411,000 units. The US durable goods orders in April increased by 2.9% supported by stronger demand for airplanes and communication equipments.

The recovering US economic data boosted market expectations of further recovery in the US economy, but market concerns over the debt crisis in the Euro zone persisted. Italy government issued a budget cuts plan worth EUR 24 billion (USD 25.9 billion), and the package aims to reduce Italy's budget gap an additional 1.6% of gross domestic product (GDP) to bring the shortfall within the EU limit of 3% of GDP in 2012 from 5.3% last year. The UK, Germany, and France governments also unveiled plans to cut budget deficits, including restructuring public expenditure and raising the retirement age and the various taxes. The euro fell back to 1.22 against the US dollar last night, testing the support at 1.2130, and the US dollar index picked up to above 87 in response.

Although the signal of recovery in the US economy allowed LME copper prices to close up, LME aluminum prices remained weak. LME aluminum inventories returned to a downward track, but actual drops in inventories will not likely happen. LME aluminum prices will find solid support at USD 2,000/mt, but any upward momentum is believed to be limited.  

SHFE aluminum prices face heavy pressure amid soaring US dollar index, and the support for domestic stock market around 2,600 will also affect futures market. Meanwhile, regional electricity price reforms still continue, and aluminum production costs will definitely increase, and aluminum production cuts will appear in the future as well. SMM predicts SHFE 1008 aluminum contract prices will hover between RMB 15,100-15,300/mt today. 

To contact the writer on this report: angelawang@smm.cn

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