Aluminium Market to Focus on Changes in Fundamentals【SMM post-holiday review】

SHANGHAI, Oct 8 (SMM) – The SHFE was closed during the National Day holiday (October 1-7). LME aluminium opened at $2,860/mt on October 1 and climbed to $2,929/mt on October 2. LME aluminium traded at $2,906/mt as of CST 13:30 on October 7, up $47/mt or 1.64% during the holiday. Trading volume was 49,830 lots, and long positions increased by 3,314 lots to 656,800 lots.

On the macro front, the US dollar index has been hovering near a one-year high since the end of September due to growing expectations of bond purchase reduction by the Fed. At the same time, the recent surge in the prices of overseas natural gas and other energy has triggered concerns about market inflation and interest rate hike, also keeping the US dollar index at highs. On the cost side, the prices of alumina in Western Australia for shipments in November soared due to the previous accidents at overseas alumina plants. Two ships of alumina were sold on October 1, with the prices at $470/mt and $473/mt respectively. The prices climbed to $480/mt on October 7, up 5.03% from the prices on September 30 and setting a new high for the year. The current sea freight from Western Australia to major Chinese ports is $65/mt, which is equivalent to 4,050 yuan/mt CIF China.

On the supply side, Qinghai plans to reduce the aluminium capacity currently in operation by 30% after the National Day holiday, while one aluminium plant in Ningxia plans to reduce its capacity by about 80,000 mt/year. The aluminium capacity that was closed due to power shortage and energy consumption dual control previously did not resume.

On the demand side, the average operating rate of large aluminium processing enterprises dropped by 3.1 percentage points to 60.8% in the week before the holiday. This was mainly due to the impact of power rationing on aluminium foil production in Jiangsu and Zhejiang. The operating rates in primary foundry aluminium alloy and aluminium extrusion sectors dropped slightly. The operating rates of aluminium processing enterprises in Jiangsu, Zhejiang and Shanghai declined significantly, and most of them are pessimistic about whether the power supply could be restored after the holiday. Secondary aluminium alloy and aluminium extrusion companies generally took 3-5 days of break for the National Day holiday, while aluminium wire and cable, plate/sheet and strip companies mostly remained in normal production. The recovery of aluminium processing enterprises in some areas will depend on new power policy after the holiday.

It is expected that aluminium inventory will continue to grow on the first day after the holiday due to the holiday factor. 

SMM believes that SHFE aluminium will move at highs after the holiday, with attention being focused on the changes in aluminium inventory and supply/demand dynamics. The US non-farm payrolls data will be released in the upcoming weekend.