Aluminum prices to swing on a strong note due to macro tailwinds and slower inventory growth

The macro front was positive. Fed maintained interest rates unchanged in March, which was in line with expectations. However, it maintained its expectation of three interest rate cuts this year. State Council released favourable policies, the National Development and Reform Commission (NDRC) and State Council expressed their intention to support for the real economy and attract foreign investment. The market was still expecting interest rate cuts, shoring up aluminum prices.

Fundamentals: Domestic aluminum operating production capacity remained stable in the week. Yunnan aluminium smelters have begun to resume production. 800,000 kilowatts of power load was allocated to the aluminum industry for production resumption, which is equivalent to the annual production capacity of 520,000 mt. Although Yunnan and other regions are still in the dry season, Yunnan’s power transmission to other provinces decreased and local photovoltaic wind power generation increased. The production resumption of 520,000 mt will be completed before mid-April. It will take a certain period from the restart of the potlines to the stable output of aluminum liquid. It is expected that the production resumption will make limited contribution to daily output in March, and large-scale production release is unlikely to happen until late April. Cost: The domestic aluminum raw and auxiliary materials were stable in the week, and the coal prices continued to decline. The coal purchase price of large smelters in Shandong were frequently reduced, and power generation costs of captive power plants were somewhat affected. Power sources such as grid power were mainly stable, and the immediate cost of domestic aluminum remained stable at 16,825 yuan/mt. According to customs data, the total imports of primary aluminium from January to February were 472,000 mt, up 214.7% YoY; the total exports were 985 mt, down 73% YoY; the total net imports were 471,000 mt, up 221.9% YoY; Total imports from Russia was about 277,000 mt, accounting for 58.7% of the total, up 163.2% YoY. Total imports from India was approximately 64,000 mt, accounting for 13.7% of total, up 607.0% YoY. Demand: Domestic downstream consumption increased slightly in the week, mainly as the construction extrusion sector operating rate picked up. The production of PV modules was better in March thanks to strong orders. The operating rate of small companies such as aluminum plate/sheet, strip and foil also improved. Growth of domestic aluminum social inventories slowed down, and aluminum billets inventories kept falling.

From a technical perspective, the model predicts that the price range of SMM A00 aluminum average price will be [18,955, 19,345], the price center will be 19,160, the unit is yuan/mt, the extreme price range will be [18,810, 19,540], the normal price range will be [18,910, 19,410], and the conservative price range will be [19,000, 19,280]. The price is expected to pull back after an initial rise or go up. The support range will be [18,910, 19,000], and the resistance range will be [19,280, 19,410]. The model predicts that the price range of the most-traded SHFE aluminium contract will be [18,975, 19,515], with the price center of 19,240, and the unit is yuan/mt. The extreme price range will be [18,700, 19,770], the normal price range will be [18,880, 19,600], and the conservative price range will be [19,070, 19,430]. The price is expected to move sideways. The support range will be [18,880, 19,070], and the resistance range will be [19,430, 19,600].

On the macro front, the Fed announced an interest rate resolution in the early morning of March 21, keeping the federal funds rate target range unchanged at 5.25% to 5.5%, in line with market expectations. Fed has not released a hawkish signal, giving the market confidence in interest rate cuts and boosting metal products prices. In terms of fundamentals, Yunnan supply will continue to rise, which may make up for some of the reductions in Sichuan and Inner Mongolia. Domestic average daily output in March was mainly stable. Primary aluminum imports surged significantly YoY, which had a certain impact on domestic spot prices, and spot discounts sustained. On the macro front, negative market sentiment has been released after Fed's interest rate meeting, but there is no severe supply shortage, social inventory is expected to begin to drop, and downstream consumption is still expected to improve. Aluminum prices may swing on a strong note due to positive factors. SMM predicts that SHFE aluminum will fluctuate at 18,880-19,600 yuan/mt this week, and LME aluminum may fluctuate at $2,250-2,360/mt.