Increased domestic inventory to weigh on aluminum prices

Macro：Positive factors emerged in the week ending October 12. Internationally, the escalating conflict between Israel and Palestine is lending some support to commodity prices, such as gold. In the US, non-farm employment growth exceeded expectations, raising the market's anticipation of a Federal Reserve rate hike. However, some Federal Reserve officials continue to maintain a dovish stance, with the market assigning less than a 9% probability to a rate hike in November. Domestically, the government continues to implement measures to stimulate consumption. The Financial Supervisory Authority has announced that, within manageable risk limits, it will ease the conditions for car consumer credit applications, reduce the down payment ratio for car loans, and decrease the cost of consumer finance. Fundamentals： the supply side of aluminum in China has largely remained stable in the week ending October 12. Adequate power supply in the Yunnan region has ensured consistent production in local enterprises. However, clearer guidance is still needed on the power supply situation during the dry season. According to the latest data from SMM, the operational capacity for aluminum domestically is around 42.94 million mt. Notably, since October, there has been a decrease in production in aluminum billet smelters in regions such as Guangxi, Henan, Inner Mongolia, and Shandong. It's projected that the proportion of domestic molten aluminum production may exhibit a downward trend in October. In October, due to a previous hike in coal prices, the electricity costs for domestic aluminum smelters with captive power plants have slightly increased. In hydropower areas like Yunnan, electricity costs have marginally risen, while grid electricity prices in other regions have not seen significant changes. On the demand side, the domestic downstream aluminum processing sectors has shown a minor improvement WoW, but the overall situation remained weak, particularly in the extrusion sector which has seen fewer orders. The aluminum plate/sheet and strip, and aluminum foil sector has experienced a steady yet minor increase in operating rates, but a few companies report no growth in new orders, which may impact future operating rates. Following the holiday, there's been a significant influx of aluminum ingots domestically. Particularly in areas like Wuxi, due to the concentrated arrival of aluminum ingots from other regions, the increase in spot inventory is noticeable, leading to a downward pressure on spot premiums to almost zero.