Aluminum Prices Retreat as Bulls Reduce Positions Before the Holiday; Aluminum Under Pressure Amid Risks of Post-Holiday Inventory Buildup and Weakening Demand [SMM Aluminum Weekly Review]

SMM, September 30:

Macro perspective:

The US September consumer confidence index plunged 6.7 points to 81.9, the lowest since 2014 and deteriorating across the board. The University of Michigan survey showed consumers' assessments of their current financial situation and that one year ahead both fell about 10%, with high-price concerns continuing to brew. Inflation pressure showed no signs of easing. US Fed Governor Cook said AI demand growth, rising oil prices, and supply chain disruptions from Middle East conflicts would keep inflation under pressure, but gave no clear guidance on rate hikes. CME data showed the market-implied probability of a 25 bp rate hike in October had risen to 70.9%, and the probability of a cumulative 50 bp hike by December reached 58.7%. Tightening expectations strengthened again, and the stronger US dollar and higher real rates weighed on dollar-denominated base metals valuations.

Fundamentals:

Supply side, China's weekly aluminum production held steady this week, while the proportion of liquid aluminum slipped 0.62 percentage points MoM, mainly because some downstream producers in central China and South China cut or halted production, reducing liquid aluminum purchases. Outside China, new capacity additions and production resumptions continued to lift operating capacity. Demand side, downstream enterprises' pre-holiday stockpiling ahead of the long holiday drove destocking of aluminum ingot and billet social inventories. Traditional peak-season demand rigidity remained, but downstream operating rates declined around the holiday. This week, the weekly operating rate of leading downstream enterprises fell 1.6 percentage points MoM, with demand weakening in the near term.

Overall, macro sentiment is broadly bearish. On fundamentals, aluminum ingot inventories are expected to see a slight short-term buildup after the holiday, processing fees for some downstream products still face further downside risk, and casting ingot expectations have risen further. With inventory buildup and near-term demand weakness, aluminum prices are expected to face resistance on the upside. Meanwhile, aluminum ingot social inventories have gradually destocked to normal levels, limiting downside as well. The most-traded SHFE aluminum contract is expected to trade at 23,300-24,300 yuan/mt in the week after the holiday, and LME aluminum at $3,150-3,250/mt. Going forward, close attention should be paid to China's aluminum semis exports and operating performance of aluminum rod and billet.

[The information provided is for reference only. This article does not constitute direct investment research advice. Clients should make decisions prudently and not use this as a substitute for independent judgment. Any decisions made by clients have no bearing on SMM.]