Aluminium settled up 2.23% at 121.35 rose to its highest level in 16 months on deficit concerns as LME aluminium inventories dropped to their lowest level in 22 months. Aluminum entered a bull market in London, closing at the highest in 16 months, on speculation demand will exceed supply for the metal used in everything from cars to packaging. Stockpiles monitored by the LME slumped 9.4 percent this year to the lowest in 22 months. Producers outside China cut output after prices on the bourse slumped 13 percent last year. Demand will exceed supply by 136,000 metric tons this year, with the deficit widening to 504,000 tons next year, Bank of America Corp. estimates. Aluminum's contango has fallen to 18-month lows amid dwindling exchange stocks, the latest in a recent series of bouts of volatility that have reignited a years-long debate about how tight the market really is. The cash price on the LME was at a discount of $16.75 per tonne to three-month forward prices on Monday, more than half the size of the spread than a month ago and its smallest since December 2012. The sudden narrowing was the third time spreads have tightened since April when spread volatility suddenly returned after a nine-month absence. The aluminum market has been in a marked contango for at least the past five years, giving traders the opportunity to store vast stocks of the metal while it accrues value and sell it forward at a profit in so-called financing deals. Technically market is under fresh buying and getting support at 119.2 and below same could see a test of 116.9 level, And resistance is now likely to be seen at 122.7, a move above could see prices testing 123.9.

Trading Ideas:

Aluminium trading range for the day is 116.9-123.9.

Aluminium prices rebounded and ended with gains offering a lifeline to China's battered aluminium industry.

Prices also seen supported as falling inventories, smelter closures and a strong demand outlook continue to attract buyers.

Aluminium Premiums added to the LME benchmark price to obtain metal in Europe, North America and Asia climbed to records this year.