SMM, March 19:
Macro perspective:
This week, the global macro front saw mixed bullish and bearish factors, with heightened uncertainty. Amid geopolitical disruptions, a stronger US dollar combined with expectations of tighter liquidity continued to weigh on commodity valuations. In the US, January core PCE inflation rose in line with expectations on a YoY basis, the PCE price index increased 0.3% MoM, and real GDP for Q4 last year was unexpectedly revised sharply downward. The US Fed announced that it would keep the interest rate range unchanged at 3.5%-3.75%, while expectations for interest rate cuts remained weak. CME data showed an extremely low probability of a near-term rate cut, and the market generally expected a relatively small chance of a rate cut in H1. In the Middle East, the geopolitical situation remained stagnant. Although a small number of oil tankers continued to pass through the Strait of Hormuz, there was still no sign of easing in the US-Iran conflict. Iran explicitly refused consultations with the US, further intensifying concerns over energy and supply chains. In China, the central bank released February financial data. M2 balance was up 9% YoY, while social financing and RMB loans in the first two months both achieved YoY growth, signaling liquidity support. In addition, China and the US held economic and trade consultations in Paris, exchanged views on issues including tariff arrangements, and reached preliminary consensus, jointly committing to maintaining stable bilateral economic and trade relations. Overall, the macro environment showed a complex game of competing forces.
Fundamentals:
Supply side, new aluminum projects in China, Indonesia, and Angola continued to ramp up production, but intensified geopolitical conflicts increased instability in aluminum supply in the Middle East. Production or shipments at some aluminum plants had already been affected, and daily average production is expected to decline. Among aluminum enterprises that have explicitly announced production cuts, Qatar Aluminium maintained an operating rate of 60%, with cut capacity at 260,000 mt; Aluminium Bahrain cut 19% of its operating capacity, or 310,000 mt, bringing the total to 570,000 mt. In addition, the Mozambique aluminum plant officially entered maintenance shutdown on March 15, involving 580,000 mt of capacity. Cost side, this week real-time aluminum cost edged up 86 yuan/mt MoM to 16,377 yuan/mt. Affected by the pullback in aluminum prices from high levels during the week, theoretical profit fell 856 yuan/mt MoM to 8,112 yuan/mt. Demand side, this week the weekly operating rate of leading downstream aluminum processing enterprises in China edged up 1 percentage point WoW to 62.9%. Peak-season conditions started to emerge, and demand was gradually released. In extrusion, PV materials entered the final stage of the export rush, while new orders from the automotive and power sectors increased significantly, supporting a high operating rate at related enterprises. Other segments all maintained a seasonal recovery pace, with overall operating rates showing a steady rebound. Inventory side, as of Thursday this week, aluminum ingot inventory in China’s major consumption regions stood at 1.339 million mt, with an inventory buildup of 45,000 mt from last Thursday. Aluminum casting ingot volume is expected to remain high in March, and the inventory buildup trend in China’s aluminum ingot social inventory is expected to continue in the short term. The post-holiday peak is still expected to reach 1.35-1.4 million mt, but the backlog of aluminum products had already eased significantly this week, and the pullback in aluminum prices also supported warehouse withdrawals across major consumption regions in China. Attention should be paid to whether the inventory inflection point can emerge as scheduled in mid-to-late March.
Overall:
Macro geopolitical risks in the global aluminum market have yet to fade. The Middle East situation remained in stalemate, threats to navigation through the Strait of Hormuz remained unresolved, and aluminum enterprises in the region faced disruptions to both raw material imports and product exports. The stability of the global aluminum supply chain remained under pressure, and the risk premium persisted, though the earlier risk premium retreated during the week as sentiment eased and bulls took profits. Affected by stronger-than-expected US employment and inflation data, market expectations for interest rate cuts were pushed back significantly, with the first cut this year likely delayed to late Q3 to Q4. A stronger US dollar, coupled with expectations for tighter liquidity, continued to weigh on commodity valuations. Fundamentally, expectations for aluminum production cuts outside China still remained, as energy and logistics disruptions in Europe and the Middle East pushed some capacity into maintenance cycles, leaving the logic of global supply contraction intact. In China, aluminum operating rates remained stable, supply-side increments were limited, and overall supply held steady. After the holiday, demand in China entered a gradual recovery track, the share of direct supply of liquid aluminum increased, and the operating rates of downstream processing enterprises rebounded MoM, with the industry gradually returning to a normal production pace. Among them, demand from PV, packaging, and the power grid remained strong, forming the core support; construction extrusion gradually recovered along with the slow progress of work resumption, recovery in traditional sectors remained relatively mild, and overall end-user support strengthened gradually. Continued destocking in LME inventory provided bottom support for LME aluminum, but under tightening fund liquidity and profit-taking by bulls, upside momentum was insufficient, and the Back structure weakened somewhat. China’s social inventory rose to a high for the same period in nearly five years, the inventory buildup cycle had not ended, and high inventory together with weak spot fundamentals weighed doubly on upward momentum. Divergence between domestic and overseas drivers persisted, the SHFE/LME price ratio continued to weaken, and SHFE aluminum moved down toward the key threshold of 24,000 yuan/mt, with prices likely to remain under pressure at high levels in the short term.The most-traded SHFE aluminum contract is expected to trade at 23,000-24,800 yuan/mt next week, while LME aluminum is expected to trade at $3,100-3,450/mt.
