SHANGHAI, Feb 20 (SMM) - On the macro front, the US CPI rose 6.4% year-on-year in January, indicating that inflationary pressure remained high. US Federal Reserve (Fed) officials said that they might need to continue raising interest rate. Data released on Thursday showed that the US PPI rose 0.7% month-on-month in January, which exceeded expectations and intensified concerns for further interest rate hikes in the future. In China, the new local government special bond quota issued by the Ministry of Finance in advance exceeded 2 trillion yuan for the first time, an increase of 50% over the previous year. Chinese Premier Li Keqiang said the central government will step up efforts for economic recovery.
Aluminium smelters in Yunnan have begun to curtail their production, which is estimated to cause a loss of 800,000 mt of aluminium capacity. And the cutbacks were required to be in place within 10 days. Thanks to a drop in residential power consumption, the power shortages in Guizhou eased slightly, allowing some local aluminium smelters to restart their potlines. However, lingering uncertainty over future power supply and delays in arrivals of cathode products curtailed the speed of production resumptions. Aluminium ingot import losses shrank amid falling LME aluminium prices, and inventory in bonded areas increased. When the import window will open is worthy of close attention. Downstream operating rates picked up slightly last week. Aluminium plate/sheet, strip, foil and construction extrusion sectors performed the best with the gradual arrival of the peak season, and the operating rates are on track to maintain an upward trend in the short term. Sluggish auto market constrained the operating rates in primary and secondary aluminium alloy, as well as industrial aluminium extrusion sectors. Aluminium billet inventory extended the decline, while aluminium ingot inventory rose at a slower pace and even saw a decline of 2,000 mt when compared with February 13.
To sum up, the US retail sales data bolstered the probability of the Federal Reserve raising interest rates by 50 basis points in March, while the macro sentiment in China was bullish amid a series of economic stimulus policies. Output cuts in Yunnan and slowdown in aluminium ingot social inventory growth should drive a rally in aluminium prices. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18, 200-19,200 yuan/mt and $2,350-2,500/mt respectively this week. SMM will keep a close on any change in supply and social inventory.
