Aluminium yesterday settled down -0.46% at 108.40 despite of positive manufacturing PMI in China and the euro zone which pushed LME aluminum up to USD 1,836/mt. However, the US dollar index climbed above 82 following the release of US manufacturing PMI. This forced LME aluminum to give back gains to close at USD 1,807.5/m. Menawhile the SFE-LME spot aluminium arbitrage continues to rise, holding at 25/lb, which should encourage Chinese aluminium buyers to import as opposed to purchasing domestically. China's aluminium imports have declined steadily since July last year, plateauing at 250kt in the past few months. The steady increase in the SFE-LME spot aluminium arbitrage may reflect a drawdown of aluminium stocks and/or weaker aluminium demand in China, as buyers remain reluctant to take advantage of better LME prices. From 3 June to 30 July, SFE aluminium stocks declined 57% to 102kt. The decrease in imports also indicates that China's demand may be softening. Also the world's largest aluminium producer, Rusal, looks poised to cut aluminium output as low aluminium prices continue to pressure margins and profitability. The company joins other major producers in signalling plans to cut high-cost aluminium capacity, as declining prices and expectations that China will add ~17.5Mtpa of cheap aluminium capacity by 2020 elicit the much-awaited supply response. Spot aluminium plus premium has declined 24% to ~USc90/lb since the beginning of 2011, but as supply begins rationalising, prices may gradually rally. However, if China's demand weakens, we could see a muted price reaction despite supply cuts. Now Aluminium is getting support at 107.85 and below same could see a test of 107.3 level, And resistance is now likely to be seen at 109.3, a move above could see prices testing 110.2.

Trading Ideas:

Aluminium trading range for the day is 107.3-110.2.

Aluminium settled flat as support seen after better-than-expected manufacturing data from across world raised expectations of demand.

Bank of England and European central bank maintained interest rates unchanged, but euro zone July manufacturing PMI was 50.3

Aluminium daily stocks at Shanghai exchange came down by 1850 tonnes