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LME prices continue to test support at $1,800 per mton; look out for relevant technical and fundamental signals due later this week

Executive Summary

1. LME prices were up slightly after last week’s sell-off but key support at $1,800 per mton continued to be tested.

LME 3M aluminum prices closed the session up 0.5% or $9 per mton at $1,811 per mton. For a second-consecutive session, prices tested levels below $1,800 per mton as the US dollar firmed up to new two-month highs. However, prices regained some of the ground lost since Friday amid apparent short-covering ahead of Wednesday’s interest rate announcement from the Fed, the release of Chinese manufacturing activity data, and tomorrow’s official resumption of US-China trade negotiations. A dip below $1,800 per mton this week could worsen the medium-term technical outlook.

More details in full report.

2. LME Cash–3M contango narrows further as conditions tighten ahead of October.

The Cash-3M contango narrowed further to a new one-week low of $24.00 per mton from $24.75 per mton on Friday, as the August–October contango narrowed to a near-two- week low with August–September narrowing to $6.75 from $8.25 per mton on Friday and September–October tightening to $5.50 from $6.00 per mton previously. As a result, we continue to estimate that the current Cash-3M contango could be too tight for some market participants to profitably finance short-term cash-and-carry deals (no longer supportive for spot premiums).

More details in full report.

3. MW Duty-Unpaid P1020 premium up to 8.81–9.37 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) was assessed today at 8.81–9.37 cent/lb, increasing from Friday’s 8.79–9.35 cent/lb amid today’s further tightening in nearby LME contangos slightly increasing the financial cost of metal in transit.

More details in full report.

4. China’s aluminum prices testing key resistance threshold again; medium-term technicals remain bearish.

SHFE two-month aluminum prices closed the overnight session down 0.3% at 13,870 yuan per mton ($1,781 per mton, excluding VAT) but rebounded in after-hours trading until approaching the key 200-day moving average threshold (currently around 13,945 yuan per mton). Prices initially faced downward pressure from downbeat economic data released over the weekend (industrial profits returned to annual contraction territory in June) but rebounded in after-hours trading amid market talk of economic stimulus measures. SHFE aluminum prices remain in bearish mode, targeting support around 13,500–13,200 yuan per mton ($1,740-$1,700 per mton, excluding VAT).

More details in full report.