Bearish Macro Front and Fundamentals to Put Aluminium Prices at Downside Risk

SHANGHAI, Mar 13 (SMM) - On the macro front, the US dollar index hit a three-month high after US Federal Reserve Chairman Powell warned that the pace of interest rate hikes may be accelerated. The Chinese government made efforts to promote economic recovery and maintain market confidence. The governor of the People’s Bank of China (PBOC) said that the PBOC will implement a sound monetary policy to create a suitable monetary and financial environment for high-quality economic development. The National Development and Reform Commission (NDRC) stated that it will make greater efforts to stabilise the supply and prices of commodities, and is confident in achieving the CPI target for this year. The Minister of Housing and Urban-Rural Development expressed confidence in the stabilisation of the real estate market.

In terms of fundamentals, aluminium smelters in Sichuan and Guizhou continued to resume production, but the pace was slow. Guangyuan Aluminium was basically in full production, while Guizhou Xingren Denggao’s new capacity ramped up. Orders and operating rates in downstream sectors barely changed, except for a slight increase in extrusion and secondary alloy sectors. Orders for industrial extrusion from the photovoltaic segment were relatively optimistic, while orders received by secondary alloy producers fell short of market expectations. Production of primary alloy producers will hardly grow amid poor end consumption, while the increase in operating rates of aluminium plate/sheet, strip and foil producers will be constrained by tepid demand recovery. The domestic aluminium ingot social inventory fell slightly, which was contributed by south China and Gongyi. The inventory pressure in Wuxi remained high.

The market generally expects US interest rate hikes. The US non-farm payrolls and inflation data will be released soon, keeping the macro sentiment cautious. If the non-farm payrolls data exceeds expectations, aluminium prices will come under downward pressure. The positive impact from aluminium production reduction in Yunnan has receded, while downstream operating rates rose very slowly in the peak season. Coupled with stubbornly high social inventories and diminished cost support, aluminium prices will face downside risk. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 17,800-18,800 yuan/mt and $2,230-2,430/mt respectively this week.