SMM News on March 5:
Macro perspective: Domestically, a meeting of the CPC Central Committee Political Bureau discussed the draft outline of the 15th Five-Year Plan, emphasizing the continued implementation of a more proactive fiscal policy and a moderately accommodative monetary policy, efforts to build a strong domestic market, and accelerated cultivation and expansion of new momentum. Overseas, geopolitical conflicts in the Middle East escalated, risk-off sentiment strengthened, the US dollar index rose, and there remained significant uncertainty over the US Fed’s plan to cut interest rates. US Fed’s Kashkari said that if inflation cools, it may be appropriate to cut interest rates one to two more times later this year; US Fed’s Williams said he still believed the US Fed’s policy rate was slightly above the neutral rate. However, as the trajectory of the Middle East situation remained unclear, uncertainty increased for the production and transportation of aluminum industry-related products.
Fundamentals:
Supply side, newly commissioned aluminum projects in China, Indonesia, and Angola continued ramping up, but with the escalation of geopolitical conflicts in the Middle East, production or shipments at some aluminum smelters had been affected, and daily average production was expected to decline. As one of the centers of the conflict, Iran’s annual aluminum production could reach over 600,000 mt; Qatar Aluminium initiated a shutdown due to a suspension in natural gas supply, expected to be completed by month-end March, involving 636,000 mt of capacity; Aluminium Bahrain maintained production, but with hindered transportation under the impact of geopolitical conflicts, it was temporarily unable to deliver normally and had announced force majeure affecting the performance of supply contracts, and its 2025 production reached 1.622 million mt. In addition, the Mozambique aluminum smelter previously announced it planned to enter maintenance shutdown on March 15 due to power contract issues; there had been no update to the plan so far, involving 580,000 mt of capacity.
Demand side, after the holiday, as downstream players gradually resumed work, demand recovered and the proportion of liquid aluminum rebounded significantly. According to data as of this Thursday, the weekly proportion of liquid aluminum rebounded by about 8 percentage points WoW. Downstream weekly operating rates rose further, including: in March, expectations for power grid order deliveries were clear, and demand for aluminum wire and cable recovered well; demand for can stock, autos, batteries, and other products continued to recover, driving a recovery in demand across related segments; the recovery in construction demand was relatively slow; starting April 1, export tax rebates for PV products will be canceled, and the PV industry’s relatively high operating rate was expected to continue through month-end March.
Inventory, with demand still in the recovery stage, aluminum casting ingot output in March was expected to remain high, coupled with volumes not yet warehoused and some finished product inventories at aluminum smelters not yet shipped to social warehouses. In the short term, the inventory buildup trend in China’s aluminum ingot social inventory was expected to continue, and the post-holiday peak was expected to still reach 1.35-1.4 million mt.
Overall, although domestic social inventory continued to build up, the Middle East geopolitical situation remained a key global focus. If geopolitical conflicts persist, expectations for global aluminum supply tightens would be strong, and aluminum prices would have strong upward momentum. In the short term, aluminum prices are expected to hold up well. The most-traded SHFE aluminum contract is expected to trade in the range of 24,300-25,500 yuan/mt next week, while LME aluminum is expected to trade in the range of $3,250-3,450/mt.
Notably, LME aluminum has shifted to a backwardation structure, and aluminum is currently the only base metal product showing a backwardation structure. According to the latest data, the LME Cash-3M price spread turned positive, reaching $1.91/mt. Overseas aluminum semis supply is expected to tighten in the short term, and there is a chance that the export window for aluminum semis under Ordinary Trade in China may turn to open.
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