SHANGHAI, Jul. 23 (SMM) -- Although US new-home starts hit a nearly four-year high, the 5.4% drop in existing home sales during June, as well a decline in the Philadelphia Federal Reserve’s manufacturing index by 12.9%, helped increase expectations the Fed would implement QE3. Increasing pressure from a slowing Chinese economy also stirred expectations of another cut in the reserve requirement for Chinese banks. For the time being, expectations of more monetary easing policies have overshadowed the European debt crisis. However, early absorption of such news would likely mean short selling would pick up soon after introduction of any QE3.
The US dollar index is expected to remain near 83, which would dampen any upward momentum in metals prices. As global demand remains weak and since Chinese and LME aluminum stocks are high, aluminum prices now face heavy downside pressures despite output cuts at overseas smelters. Aluminum prices now should have some downward room to move, so LME aluminum is expected to meet resistance at USD 1,950/mt and only find weak support at USD 1,900/mt. The most active SHFE aluminum contract price lacks support needed to break through RMB 15,700/mt, so it should continue to test support at RMB 15,500/mt. As buying falls off as the month ends, spot aluminum discounts over current-month SHFE aluminum prices may grow to more than RMB 100/mt. The spot market is still a buyer’s market, so deals should remain light.