Aluminium settled up 0.78% at 122.3 as supply constraints prompted expectations of further gains. US existing homes sales for June and Richmond manufacturing index for July beat forecasts, evidence of recovery in the world’s largest economy. These upbeat economic indicators, along with improving market fundamentals, drove aluminum prices up. Aluminium stocks fell by 9,075 tonnes to 4.938 million tonnes, their lowest in nearly two years. Years of aluminium smelter cutbacks due to depressed prices have eroded supply just as global demand recovers, in part due to a revival in the U.S. and European auto sectors. Still, aluminium stocks remain high overall, with just under 5 million tonnes sitting in LME warehouses, and output in China is on the rise, prompting some analysts to question the sustainability of the rally. The discount for cash aluminium over the three-month price CMAL0-3 has fallen to 18-month lows amid dwindling exchange stocks, reigniting a long debate about how tight the market really is. Three-month aluminum on the London Metal Exchange hit its highest since last February at USD 2,054.8/mt after opening at USD 2,017.8/mt on Tuesday, and ended at USD 2,044.5/mt. The People’s Bank of China (PBOC) reported that China’s forex receipts at financial institutions dwindled RMB 88.3 billion to RMB 29.45 trillion in June, down for the first time after rising in 10 straight months. The fall in forex receipts suggests that China’s injection of liquidity looks set to change. Technically market is under short covering as market has witnessed drop in open interest by -6.57% to settled at 8145 while prices up 0.95 rupee, now Aluminium is getting support at 121.4 and below same could see a test of 120.4 level, And resistance is now likely to be seen at 123.1, a move above could see prices testing 123.8.

Trading Ideas:

Aluminium trading range for the day is 120.4-123.8.

Aluminium gained as supply constraints prompted expectations of further gains.

Still, aluminium stocks remain high overall, with just under 5 million tonnes sitting in LME warehouses, and output in China is on the rise

Rising Chinese output is likely to act as a brake on aluminum’s rally since May, even as the global outlook for the metal improves.