SHFE Aluminium to Move up amid Continued Decline in Social Inventory

SHANGHAI, May 23 (SMM) - Macro front: On May 18, US Fed Chairman Powell said he would stand for raising interest rates to the highest level needed to curb inflation. Chicago Fed President Evans also supported hawkish actions, suggesting that the interest rates would be raised by 50 basis points at the FOMC meeting in June, and reiterated the desire to approach neutral rates by the end of the year. Philadelphia Fed President also expects that the interest rates will be hiked by 50 basis points in June and another 50 basis points in July. From January to April, the investment in real estate development in China totalled 3.92 trillion yuan, a year-on-year decrease of 2.7%; the floor space of housing under construction was 8.19 billion square meters, flat year-on-year; the floor space of housing starts was 397.39 million square meters, a year-on-year decrease of 26.3%.

Fundamentals: Most aluminium smelters maintained stable operation last week. A smelter in Yunnan shut down approximately 200,000 mt of capacity on May 6 in the wake of an accident. With the restarts of closed capacity, the domestic aluminium output maintained year-on-year growth. Some traders in Zhejiang, Hebei and other regions reported the inflows of Rusal aluminium ingots into the spot market. Some downstream companies confirmed that they have received Rusal aluminium ingots. According to customs data, China’s aluminium ingot imports from Russia jumped 48% YoY to 31,200 mt in April. It is expected that Rusal aluminium ingots will continue to enter the Chinese market in the future. The operating rates of aluminium downstream enterprises picked up slightly, mainly driven by those in Shanghai’s neighbouring areas. Active downstream restocking in Wuxi and Gongyi allowed the aluminium ingot social inventory to extend the downward trend. Some buyers in Gongyi turned to primary aluminium as a substitute due to aluminium scrap shortages in Chang’ge City, Henan Province, also contributing to the destocking process.  

In the short term, domestic consumption recovery and decline in social inventories will shore up aluminium prices. In addition, potential bauxite export ban by Indonesia has aggravated market concerns about higher alumina and aluminium costs in the future. Therefore, the most-traded SHFE aluminium contract and LME aluminium are likely to climb to 20,000-21,500 yuan/mt and $2,800-3,100/mt respectively this week. SMM will keep a close eye on the domestic aluminium consumption and inventory changes.