Aluminium settled up 2% at 107.35 on short covering despite ongoing concern regarding the implication of sequential weakness in macroeconomic manufacturing leading indicators, signals from base metals markets in terms of LME stocks, time spreads and Chinese trade data all paint a far more constructive picture of underlying fundamental conditions. Also support seen as many aluminium producers have cut loss-making capacity or shut down completely as they struggle with low LME prices, high energy costs and a flood of new Chinese capacity. Meanwhile Russia's Rusal estimates that producers outside of China eliminated up to 1.2 million tonnes of capacity last year and further reductions of 1 million-1.5 million tonnes are expected in 2014. Cutting output outside of China will eventually help erode a mountain of inventory that has overshadowed the market for years. Still, since early November cash LME prices have been under $1,800 per tonne, which is close to or below break even for a big portion of global capacity. Even with all the cuts so far, market expect a surplus of 568,400 tonnes this year with output rising in the Middle East, where power costs less, and China. In the week ahead, the focus will be on the U.S. Federal Reserve's tapering of monetary stimulus, with the release of its minutes on Wednesday, and on China's slowdown, with a purchasing managers' index due on Thursday. Technically market is under short covering as market has witnessed drop in open interest by -12.01% to settled at 3539 while prices up 2.1 rupee, now Aluminium is getting support at 105.6 and below same could see a test of 103.7 level, And resistance is now likely to be seen at 108.4, a move above could see prices testing 109.3.

Trading Ideas:

Aluminium trading range for the day is 103.7-109.3.

Aluminium gained as US dollar index dropped after data showed New York Fed’s manufacturing index in February fell from January’s 20-month high

Producers of lightweight metal will cut at least 700,000 tons of capacity this year and production will still exceed demand by 162,000 tons, from 632,000 tons in 2013

Cancelled warrants jumped 23,975 tonnes to 2,484,600 tonnes, most likely due to “Third Wednesday” activity.