Post-holiday domestic aluminum social inventory accumulation lower-than-expected combined with cost increases, aluminum prices expected to fluctuate upward

SMM, Oct 12: This week, the macro front continued the optimistic sentiment from before the holiday, combined with signs of improvement in real estate sales during the holiday. After the holiday, the National Development and Reform Commission pushed for the implementation of a package of incremental policies, continuously injecting confidence into the market. However, the US non-farm payrolls data for September showed stronger-than-expected labour market resilience, causing expectations for future US Fed interest rate cuts to waver. The conflict in the Middle East also intensified, bringing new uncertainties to the market.
Fundamentals: This week, domestic aluminum operating capacity continued to rise. According to SMM data, as of now, the total domestic aluminum operating capacity reached around 41.51 million mt. In October, the resumption of capacity in Guizhou and Sichuan continued to climb, along with the commissioning of new capacity in Xinjiang. By the end of October, domestic aluminum operating capacity is expected to grow to a high of 43.63 million mt, with domestic aluminum daily average output likely to exceed 120,000 mt. Cost side: Recently, the tight supply of spot alumina persisted, and alumina prices continued to rise, pushing up the cost center of domestic aluminum. As of Thursday, the immediate full average cost of domestic aluminum was about 18,076 yuan/mt, up 220 yuan/mt from the end of September. During the week, domestic spot aluminum prices fluctuated at high levels, with good industry profitability. As of Thursday, the average profit of domestic aluminum was about 2,433 yuan/mt. Overseas news: According to foreign reports on October 9, four people directly involved in pricing negotiations stated that the aluminum premium for shipments to Japanese buyers in the October-December quarter was set at $175/mt, up 1.7% from the previous quarter. The domestic primary aluminum import window remained closed, with significant losses in overseas aluminum ingot imports, and the market mainly relied on long-term contracts. Demand side: After the holiday, the strong rebound in aluminum prices suppressed the operation of downstream processing enterprises such as construction materials, with enterprises showing a strong wait-and-see sentiment. However, consumption of industrial materials and plate sectors was acceptable. During the week, some areas in Henan issued heavy pollution weather orange warnings, leading to production cuts in some small and medium-sized aluminum processing enterprises. Recently, domestic aluminum ingot arrivals were lower-than-expected, and the spot market circulation was tight.
Overall, on the macro front, there were significant fluctuations in domestic and international macro sentiment before and after the holiday. The US non-farm payrolls data exceeded expectations, and combined with the US Fed's September meeting minutes, the market revised expectations for future US Fed interest rate cuts. The US dollar index rebounded to high levels after the holiday. The domestic "system implementation of a package of incremental policies" theme meeting content was slightly below market expectations, cooling macro sentiment but remaining generally positive. On the fundamentals, domestic aluminum supply continued to grow, but considering the YoY decline in net imports, domestic apparent consumption YoY growth was limited. Demand side, October was still a small peak season for downstream demand, with mainstream downstream sectors maintaining largely stable operations and production schedules. Overall, with the expectation of loose global financial conditions and no prominent supply-demand mismatch in fundamentals, coupled with strong alumina costs, the aluminum market is expected to fluctuate upward in the short term. SMM forecasts that next week, the most-traded SHFE aluminum contract will fluctuate between 20,170-21,260 yuan/mt, and overseas macro sentiment fluctuations may lead LME 3M aluminum to range between $2,500-2,700/mt. Continuous attention should be paid to domestic consumption conditions and changes in international macro sentiment.