SHFE Aluminium Pressured in Off-Season despite Recent Rallies on Falling Stocks and Easing Market Sentiment

SHANGHAI, Jul 8 (SMM) – Base metals prices rebounded as a whole yesterday with easing market sentiment though the macro environment remained pessimistic.

On the macro front, the US Fed released the June meeting minutes earlier, highlighting the need to curb inflation. And it is also indicated that a 50 or 75 basis point rate hike can be expected in July.

SHFE aluminium moved rangebound yesterday (July 8), and closed the day session with a gain of 0.82% at 18,360 yuan/mt.

In the spot market, SMM A00 aluminium ingot prices stood at 18,210-18,250 yuan/mt with an average of 18,230 yuan/mt, down 10 yuan/mt from the last trading day.

SMM aluminium prices in Foshan were in discounts of 90 yuan/mt over SHFE 2207 contract yesterday morning, down 20 yuan/mt from a day ago. The spread between Guangdong and Shanghai market widened to 60 yuan/mt. In the afternoon session, the downstream restocked, but goods holders were less interest in making shipment with low prices. The traded prices rose from discounts of 30 yuan/mt to premiums of 300 yuan/mt, or between 18,140-18,470 yuan/mt.

On the fundamentals, the supply kept rising. But the demand is unlikely to improve in the off-season.

In terms of inventory, as of July 7, SMM aluminium social inventory totalled 723,000 mt, down 11,000 mt from last Thursday, and down 35,000 mt from the same period last year. The inventory in Wuxi kept falling, and rose for two straight weeks in Foshan. Meanwhile, SMM aluminium billet social inventory fell 4,700 mt from last Thursday to 101,700 mt. However, both downstream purchasing interest as well as order book have shown signs of weakening demand, hence the billet inventory is likely to fall significantly in the future.

On the supply side, new capacities are still putting pressure to the supply side. According to SMM research, a new 100,000-mt aluminium project has been officially put into production, and is expected to reach full production by the end of August. Another 70,000-mt project will commission in July.

To sum up, aluminium supply is still under pressure, while the demand side fails to see significant improvements. In the spot market, downstream inquires picked up after prices dropped recently, but actual transactions were still lacklustre. Aluminium prices are likely to move between 18,000-18,700 yuan/mt as the prices are now close to the instant cost.