This week, the macro front was largely positive. Fed Chairman Powell clearly stated that rate cuts are the future policy direction, almost confirming a rate cut in September. Additionally, officials from the US, UK, and EU central banks all indicated last Friday that they would enter a rate-cutting cycle in the coming months, leading to a surge in liquidity easing expectations. China continues to boost consumption, with PBOC Governor Pan Gongsheng stating that the next step will be to strengthen counter-cyclical and cross-cyclical adjustments, focusing on supporting stable expectations, boosting confidence, and consolidating and enhancing the economic recovery trend.
Fundamentals: This week, the domestic aluminium supply side remained largely stable. Sichuan experienced another power shortage, with some aluminium enterprises in the province facing power rationing of 5%-10% during peak hours. This short-term load adjustment had little impact on aluminium production, but the local power supply situation needs to be monitored. Cost side: Domestic spot alumina prices slightly increased this week, while other raw and auxiliary materials remained largely stable. According to the SMM aluminium daily cost model, as of Thursday, the immediate full cost of the domestic aluminium industry was about 17,693 yuan/mt, up 26 yuan/mt WoW, with immediate industry profits at about 1,856 yuan/mt, down 167 yuan/mt. Overseas market: Recently, overseas primary aluminium premiums have been declining. It is reported that the recent premium quotes for shipments to Japanese ports were between $147-155/mt. However, aluminium ingot inventories in Japan have remained low, and the market expects that the premiums at Japanese ports may not drop significantly in Q4. Demand side: This week, domestic downstream aluminium operations remained largely stable. Due to the continuous rebound in aluminium prices, some extrusion enterprises had no significant orders this week. The plate/sheet, strip, and foil industry saw slight improvement in operations, with some enterprises reporting better orders for packaging foil and other products, transitioning to the traditional peak season. The aluminium wire and cable market remained largely stable, but the rapid rise in aluminium prices led to decreased profitability for some enterprises' previous orders, strengthening their willingness to delay production. This week, domestic downstream aluminium processing enterprises were cautious, mainly restocking on demand. Additionally, the trade default incidents in South China affected downstream purchasing sentiment, leading to another increase in domestic aluminium social inventory this week.
Overall, the market is gradually digesting the expectation of a Fed rate cut next month, currently awaiting inflation data that may provide clues on the extent of the rate cut. On the fundamentals side, the domestic aluminium supply side remains stable in the short term, with recent power rationing and other disturbances having no substantial impact on aluminium production. Downstream demand is still in a slow recovery phase, but more end-user demand is needed for a significant improvement. In the short term, with the fading of favorable macro sentiment and lower-than-expected inventory reduction on the fundamentals side, bulls lack confidence, and aluminium prices may fluctuate rangebound. SMM expects the most-traded SHFE aluminium contract to fluctuate between 19,610-20,460 yuan/mt next week. LME 3M is expected to range between $2,420-2,580/mt. Continued attention is needed on aluminium consumption and macroeconomic changes.
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