Has the Short-term Panic Sentiment Over Falling Aluminium Prices Been Digested?

SHANGHAI, Nov 2 (SMM) – Aluminium prices retreated 25% as of October 29, the biggest of correction in a week since 10 years ago. Its decline slowed in early November. The most-traded SHFE aluminium contract stood at 20095 yuan/mt today.
SMM A00 (Foshan) was quoted 20150 yuan/mt, down 20% from the high point in the year. There are some reasons for the falling aluminium prices.  

On the raw materials side, this sector features energy-intensiveness. The cost support of aluminium prices weakened as coal prices continued to fall, which is the main reason for the sharp decline in aluminium prices.

On the supply side, aluminium ingots that have been overstocked in the production areas on bad weather arrived, pushing higher the stocks. Aluminium inventories in China increased 21,000 mt from last Thursday to 100,300 mt as of November 1.

Downstream producers ramped up restocking as aluminium prices declined and power rationing in some regions was eased. 

The operating rates stabilised as power rationing in the downstream plants was eased and the processing plants were active in delivering orders as aluminium prices declined. Only the secondary aluminium companies were affected by price drop on the raw materials and the operating rates fell slightly due to low-priced alloy ingots. If the power rationing is eased, the operating rates at downstream processing plants will increase. Except for orders from building materials plants. Others are less affected by low temperature. 

The panic sentiment was eased to some extent as coal prices stop falling. However, the concentrated arrivals of aluminium ingots overstocked in the production areas brought about an increase in the inventory. Therefore, SHFE aluminium prices are likely to rebound limitedly.