A Mix of Bullish and Bearish Factors to Keep Aluminium Prices Rangebound in the Short Term

SHANGHAI, Feb 13 (SMM) – On the macro front, the seasonally-adjusted US non-farm payrolls surged by 510,000 in January, while the unemployment rate hit a new low in 53 years, driving the US dollar index up sharply. The commodity market came under pressure as a result. Subsequently, US Fed Chairman Powell said that the interest rates would be raised further, rattling the market. In China, the National Development and Reform Commission held a national video conference on February 9, expressing that it will focus on stabilising market prices this year. According to preliminary statistics, China’s newly added social financing stood at 5.98 trillion yuan in January, down 195.9 billion yuan YoY. Among them, newly added RMB loans to the real economy stood at 4.93 trillion yuan, an increase of 730.8 billion yuan YoY. The Chinese government repeatedly rolled out measures to boost the economy, the power of which has been reflected in some economic data, further strengthening expectations for consumption recovery.

In terms of fundamentals, as the long-awaited aluminium output cuts in Yunnan have not yet been enforced, longs were gradually losing their patience. Aluminium ingot production in other regions has gradually returned to normal levels. Falling coal and prebaked anode prices translated into lower aluminium costs. Operating rates barely changed in primary aluminium alloy and aluminium foil sectors amid stable orders, but recovered across other downstream sectors. In particular, producers in aluminium extrusion, as well as aluminium plate/sheet and strip industries are optimistic that their orders would maintain an increase. On the whole, downstream operating rates will keep rising in the short term. The domestic aluminium ingot social inventory was still in a seasonal accumulation cycle, with no sign of falling in the foreseeable future. The United States is considering raising the tariff on Russian aluminium to 200%, triggering concerns that Russian aluminium would flood the Asian market.

The US non-farm payrolls in January and Fed officials’ remarks have reduced market risk appetite, while the macro sentiment in China is bullish. Should the follow-up aluminium production cuts in Yunnan meet market expectations, the trading logic in the aluminium market may shift to cost, downstream consumption and inventory. However, if the output reduction turns out to be bigger than expected, the aluminium market could potentially shift to a tight balance. Considering that the market is intertwined with bearish and bullish factors, aluminium prices may move rangebound. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,000-18,800 yuan/mt and $2,400-2,580/mt respectively this week.