SMM Morning Review - 2011/3/21 Aluminum Market

SHANGHAI, Mar. 21 (SMM) -- The People's Bank of China (PBOC) announced on Friday to raise the bank reserve requirement ratio by 50 basis points from March 25th. The hike, the third in 2011 and the ninth since the beginning of 2010, is the latest move to soak up liquidity to check inflation. The US dollar index tumbled during the European trading hours due to China’s tightening monetary policy and strengthening euro, with the index finally closing at 75.554, down 0.442 or 0.58% compared with the previous trading day.

The weaker US dollar helped push up LME aluminum prices to open significantly higher at USD 2,547/mt. Later, LME aluminum prices fluctuated higher, but concerns that China’s action to tighten money supply may hurt market demand helped limit the upward momentum in LME aluminum prices, with prices facing strong resistance at the 20-day moving average. LME aluminum prices finally closed at USD 2,560/mt, up USD 37/mt or 1.47% compared with the previous trading day. Total positions fell significantly by 14,213 lots to 693,290 lots.

Today, SHFE 1105 aluminum contract prices opened slightly higher driven up by advancing LME aluminum prices, and although investors were expecting that China would introduce tightening monetary policies frequently, spot aluminum consumption was dampened again by tighter cash liquidity, which weighed down SHFE aluminum prices. SMM predicts SHFE 1105 aluminum contract prices will test the support at the 5-day moving average and keep fluctuating narrowly today.                    

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