On the macro front, China agreed to engage with the US during the period, but no clear outcome has been achieved yet. Additionally, Fed Chair Powell indicated that there is no rush to cut interest rates, resulting in a bearish overseas macro sentiment. Domestically, three ministries announced a package of financial policies to stabilize the market and expectations. The central bank announced ten policy measures, including a comprehensive RRR cut of 0.5 percentage points, a policy rate cut of 0.1 percentage points, a reduction in the interest rates of structural monetary policy tools and housing provident fund loans by 0.25 percentage points, and the establishment of a 500 billion yuan "re-lending facility for service consumption and elderly care." The favourable domestic macro environment remains unchanged, and the realization of the positive impacts of these policies will need to be observed in the future.
On the fundamental front, the operating capacity of domestic aluminum smelters remained stable, with replacement capacity in Yunnan gradually coming online. The cost side of the aluminum industry shifted downward again during the week. As of Thursday this week, the domestic instantaneous average complete cost of aluminum was approximately 16,436 yuan/mt, down 148 yuan/mt from Thursday last week, mainly due to the continuous decline in alumina prices. The cost of aluminum fell by 0.9% from Thursday last week. Currently, the cost expectations for aluminum smelters continue to decline, providing support for bears. Additionally, on the demand side, the significant pullback in aluminum prices after the holiday stimulated downstream buying sentiment. Domestic social inventories of aluminum ingots shifted from inventory buildup to destocking after the holiday, and the inflection point for inventory buildup has not yet arrived, providing support for aluminum prices. According to SMM statistics, on May 8, domestic social inventories of aluminum ingots stood at 620,000 mt, a decrease of 16,000 mt from Monday, mainly due to stimulated downstream purchasing sentiment following the price decline. However, it is worth noting that entering the mid-to-late May, except for cables, most aluminum processing sectors are experiencing a transition between peak and off-peak seasons. Coupled with the end of the PV installation rush and the decline in export orders, enterprises' finished product inventories have risen, and the operating rate has shown a downward trend. The expectation of weakening demand has reduced the upward momentum of aluminum prices, attracting bearish capital.
In summary, on the macro front, it will take time for the transmission of domestic favourable policies, and there is still no resolution to the tariff war, with bearish influences persisting. On the fundamental front, the destocking of domestic aluminum ingot inventories provides support for aluminum prices, but the expectation of weakening demand and the decline in aluminum smelting costs both support bears. With bears entering the market and futures prices declining, amidst a mix of bullish and bearish factors, it is expected that domestic aluminum prices will fluctuate considerably in the short term. Next week, the most-traded SHFE aluminum contract is expected to trade around 19,300-19,800 yuan/mt, while LME aluminum is expected to trade around $2,370-2,400/mt.
