SHFE Aluminium Soared Once Again to Record High amid Rumours of Further Output Cut

SHANGHAI, SMM (Aug 30) – SHFE aluminium prices have kept rewriting the record high in light of frequent disruptions to the supply side just like today, when the intraday price once surged to 21550 yuan/mt, the highest since May, 2006, and the most-traded SHFE aluminium contract closed at 21495 yuan/mt, an increase of 3.92%. The price surge was triggered by rumours that Guangxi has issued a notice on the convening of a meeting to strengthen the dual control of energy consumption, suggesting that aluminium, alumina in Guangxi will experience further output cut.

Meanwhile, spot market performed strongly. Spot transactions in east China in morning trading mainly stood at 20620-20650 yuan/mt according to SMM, which later climbed following SHFE daily chart. Spot premiums maintained at 20 yuan/mt against front-month contract, but transaction was muted in late trading.

SMM believes that the recent aggressiveness in aluminium prices is caused by the following factors:

1. Changji, Xinjiang has implemented output control over local aluminium production, which is likely to impact around 360000 mt of annual capacity, worrying the market about supply;

2. Though the central government has decided to release the third batch of national reserves last Friday with a volume of 70000 mt (90000 mt in the second batch), the market took it as below expectations. The volume is even lower than the capacity influenced by output cut in Xinjiang, thus the overall market regulation effect will be quite limited.

3. The National Development and Reform Commission announced last Friday that it will improve the tiered electricity pricing system for aluminium sector, and encourage the use of renewable energy like wind power, photovoltaic power, etc. to reduce the consumption of fossil energy. Preferential electricity pricing will be strictly prohibited going forward. The market became concerned over rising costs in terms of power consumption in Yunnan.

4. Social aluminium inventories remained at a low level despite slight rallies in recent period. According to SMM, social aluminium inventory edged down 1000 mt to 753000 mt from last Thursday, offering some support to aluminium prices.

5. Rumours went around that relative authorities in Guangxi have formed a list of companies with output cut targets, including companies engaged in steel & iron, iron alloy and aluminium production. The list has not been verified by any authorities so far, and SMM will keep tracing the latest news.