Macro and production resumption expectations jointly weigh on aluminum prices, which consolidate on a subdued note [SMM Aluminum Price Weekly Review]

SMM October 15 news:

1. Macro perspective

The US-Iran conflict continues, with Brent crude back above $100, closing at $106.06/barrel on October 14, and WTI at $95.09/barrel, reinforcing overseas smelting energy cost support once again. After the US Fed's 25bp rate hike in September was implemented, the US September CPI released on October 14 came in at 3.7% YoY and core CPI at 2.6% YoY, both above market expectations. The market increased bets on an October rate hike, with US Treasury yields and the US dollar rising, exerting sustained pressure on nonferrous metal valuations. Next week, attention will be on the State Council Information Office press conference on Q3 national economic performance on October 19 (China's first three quarters GDP), as well as US Fed officials' remarks ahead of the late-October FOMC meeting.

2. Fundamentals

Outside China, aluminum resumptions and new capacity additions continue to advance, with expectations of ample supply in the longer term still weighing on futures sentiment. Although LME aluminum inventory has dropped to a historically low level of 238,400 mt, the macro front remains pressured by expectations of tightening liquidity outside China. In China, social inventory briefly built up during the National Day holiday before resuming its decline. According to SMM statistics, as of October 15, China's aluminum ingot social inventory stood at 636,000 mt, down 50,000 mt from last Thursday. Aluminum billet inventory was 168,000 mt, down 19,000 mt WoW, shifting to destocking after seasonal inventory buildup post-holiday, confirming consumption resilience. In addition, China exported 656,000 mt of unwrought aluminum and aluminum semis in September, up 4.8% MoM from 626,000 mt in August, exceeding market expectations, with export consumption still showing resilience.

However, marginal changes warrant caution: the proportion of liquid aluminum in September fell short of expectations, and October is expected to pull back slightly, with casting ingot volume increasing MoM and aluminum ingot supply seeing marginal expansion. Earlier, aluminum billet processing fees were at low levels and some enterprises cut production. This week, processing fees have shown recovery (on October 15, Wuxi Φ90 aluminum billet processing fees were 540 yuan/mt, up about 130 yuan/mt from pre-holiday), with production cut pressure easing marginally.

3. Overall assessment

On the macro front, rising expectations for US Fed interest rate hikes, a strong US dollar, and high US Treasury yields continue to pressure nonferrous metal valuations. On fundamentals, overseas production resumptions and new capacity additions still weigh on near-term futures sentiment. Aluminum prices are expected to consolidate on a subdued note next week, with the most-traded SHFE aluminum contract trading in the range of 22,500-23,500 yuan/mt, and LME aluminum at $2,850-3,050/mt.

4. Risk alerts

1. If the late-October FOMC rate hike exceeds expectations, further gains in the US dollar and US Treasury yields could pressure aluminum prices;

2. After Xinjiang shipments resume, concentrated arrivals of aluminum ingots, coupled with rising casting ingot volume, could slow the pace of inventory destocking;

3. The sustainability of aluminum billet processing fee recovery and the pace of downstream post-holiday restocking fell short of expectations.

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