Aluminium Prices are Expected to Move Rangebound Without Sufficient Momentum

SHANGHAI, Apr 19 (SMM) - On the macro front, the intensifying banking crisis and plunging stock prices exacerbated market concerns about liquidity. The Federal Reserve once again announced a 25 basis point interest rate hike, and the governor of the BoE said that the interest rate hike will extend in addition to the joint efforts of the central banks of the United States and other six countries to rescue the market. But the Fed's attitude towards interest rate hikes in the future was less aggressive than before. The intensive announcement of oil output cuts by many countries put a significant pressure on Fed's fight against inflation. Overseas macro front is full of uncertainties while the domestic macro front is improving. The support from the China Banking and Insurance Regulatory Commission and the Ministry of Industry and Information Technology to bolster economy and the advancement of RMB internationalisation have boosted the market's optimism about the future domestic environment.

On the supply side, although the daily output in south-west China fell slightly, the supply of domestic aluminium increased slightly in March. At the same time, the operating rates of downstream alloy industry increased in March, with the conversion rate of molten aluminium soaring 8.3 percentage points to 71%. The domestic capacity has been restored to around 40.22 million mt as of the beginning of April. Coupled with the stable production of Guizhou Huaren and Chinalco Zunyi and the production increase in Guangxi, domestic aluminium output is expected to increase 0.67% year-on-year to about 3.32 million mt in April.

In terms of costs, the electricity prices in March remained stable while the prices of prebaked anodes and alumina fell slightly, and thus the overall cost of domestic aluminium enterprises decreased slightly on the month. However, in April, the sharp price cut of prebaked anode, dipping costs of grid power and falling alumina prices are expected to drive the average cost of aluminium to fall below 16,500 yuan/mt.

On the demand side, the operating rates of downstream sectors all picked up in March, including industrial extrusion, aluminium wire and cable, construction extrusions and aluminium plate/sheet, strip and foil. In mid-March, the domestic aluminium social inventory started to declined and fell by 180,000 mt in March alone.

From a technical point of view, the most-traded SHFE aluminium contract may move downwards or hover sideways from April 10 to May 10. The forecast of other prices and indexes that we obtained includes: 1. The average price of SMM A00 aluminium is predicted to hover at lows or move rangebound. 2. LME aluminium price is expected to hover sideways and then decline. 3. The refined aluminium spot trading intensity difference index is forecast to fluctuate at high levels. 4. China's refined aluminium social inventory is set to move at lows and then bottom out. 5. China's aluminium billet inventory across major Chinese markets will fall and then rebound. 6. The SMMI will move at lows and then bottom out. 7. The US dollar index will fluctuate downward.