SMM Aluminum Market Morning Review (2013-6-20)

SHANGHAI, Jun. 20 (SMM) – LME aluminum inventories surged to 5.41 million mt last night, a new record high. Although the surge in inventories is due to the fact that aluminum is held as collaterals for financing, this did keep aluminum prices in check. Investors were cautious ahead of the result of the US Federal Reserve (Fed) policy meeting. This pushed the US dollar index up to 81.5, weighing down commodity prices. In response, LME aluminum sank to USD 1,825.8/mt during the European trading session, a new low for the month. Finally, LME aluminum closed down 0.37% at USD 1,834.3/mt, down for nine days in a row. LME aluminum inventories soared 66,100 mt to 5,414,250 mt, while positions contracted 4,785 lots to 737,821 lots. 

The Fed announced Wednesday that it will keep interest rate unchanged at 0-0.25% and continue to buy USD 85 billion of debt each month, which is in line with expectations. However, Fed Chairman Bernanke said the US economic expansion will be strong enough for the Fed to start scaling back its bond-buying program later this year. This will put downward pressure on commodity prices for the near future.

The Fed will taper off QE3 later this year. Meanwhile, it is widely believed that HSBC’s flash China manufacturing PMI for June due to be released today will be downbeat. In this context, LME aluminum will fall to USD 1,800/mt at the bottom and move within USD 1,800-1,840/mt on Thursday. SHFE 1310 aluminum contract is expected to open lower at RMB 14,480/mt, with prices between RMB 14,400-14,500/mt. In spot market, traders will be anxious to sell, but downstream consumption will be sluggish, with spot discount of RMB 0-30 and premium of RMB 0-10/mt expected over SHFE 1307 aluminum contract prices.