SHANGHAI, Feb 28 (SMM) – With the escalation of the Russian-Ukrainian conflict, LME aluminium moved all the way up to refresh a record high on February 24, and SHFE aluminium also followed suit. Aluminium prices pulled back following reports that the energy and aluminium products from Russia may bypass the sanctions. However, the international aluminium prices remained at a high level. In the latest interview with CCTV, SMM has shared its thoughts on what changes have taken place in the Chinese aluminium market under the background of the continuous rise in aluminium prices.

Russia is the largest producer of aluminium other than China. In 2021, Russia's aluminium production reached 3.76 million mt, accounting for more than 5% of global production. Traders generally believe that aluminium prices are unlikely to peak in the short term with the escalation of the Russia-Ukraine tensions. At the same time, rising overseas energy costs have also restricted aluminium supply. After the escalation of the conflict between Russia and Ukraine, the prices of crude oil and natural gas have entered a new round of rising channel, and both have reached record highs. Against the background of rising energy costs, smelters are facing huge cost pressure.

It is worth noting that, as one of the main energy suppliers in Europe, Russia has cut off the supply of natural gas to Europe, which has forced European aluminium smelters to slash their output. Analysts believe that the sharp reduction in aluminium imports will affect the supply and demand situation in China.

Liu Xiaolei, director of SMM’s big data department, said in an interview that there is a supply gap of at least 100,000 mt of imported aluminium ingots in a single month, which needs to be filled in by domestic production. However, due to the slow pace of production resumption, the supply-demand imbalance in China will intensify in the short term.

Earlier, there was news that the Biden Administration was planning to delay sanctions against Russia that could hit aluminium supply as the market grappled with an already severe aluminium shortage. Under the influence of this news, both LME aluminium and SHFE aluminium went down last Friday February 25, closing down 0.85% and 1.44% respectively. 

In the spot market, the spot price of SMM A00 aluminium stood at 22,820 yuan/mt last Friday, an increase of 120 yuan/mt from the previous day. Although downstream buyers still took a wait-and-see stance, traders began to stock up as the accumulation of domestic social inventory had shown signs of slowing down, helping narrow spot discounts in China by 10 yuan/mt to 50 yuan/mt against the SHFE front-month contract. The prices in Gongyi were at discounts of 160-170 yuan/mt against east China and discounts of 210-220 yuan/mt against the SHFE front-month contract.

According to SMM statistics, the domestic aluminium ingot social inventory totalled 1.1 million mt as of February 24, up 60,000 mt from a week ago, but the growth slowed down. The domestic inventory of aluminium billets declined 4,000 mt to 260,600 mt. The operating rates of major aluminium processing enterprises in China stood at 68.1% last week, up 1.6 percentage points from a week ago, according to SMM survey.

After the outbreak of the Russian-Ukrainian war, concerns of the shortage of energy and aluminium supply have intensified. The speed of aluminium inventory accumulation has slowed down. Aluminium processing enterprises have gradually resumed production. Intensified overseas supply risks and moderate domestic consumption will support aluminium prices at highs in the short term.