Aluminium Supply in China Recovered, Trades in Spot Market Improved

SHANGHAI, Mar 3 (SMM) – Overnight, the most-traded SHFE 2204 aluminium contract opened at 23,200 yuan/mt, with the highest and lowest prices at 23,610 yuan/mt and 23,080 yuan/mt before closing at 23,290 yuan/mt, up 335 yuan/mt or 1.46%.

LME aluminium opened at $3,487/mt on Wednesday and closed at $3,576/mt, an increase of $90/mt or 2.58%.

Macro: The National Development and Reform Commission (NDRC) made announcement regarding the supervision of medium and long-term coal contracts in 2022. The NDRC emphasised that all medium and long-term coal contracts in 2022 will be filed and confirmed through the online platform of the National Coal Exchange Center, and the integrity commitment will be signed online, and all of them will be included in the integrity guarantee platform of the "Credit China" website for supervision (Bullish ★).

Fed Chairman Powell supports the Fed to raise interest rates by 25 basis points in March, and is open to a one-time increase of 50 basis points in the future, saying that the US economic expansion is strong enough to withstand interest rate hikes.（Negative factor★）

Fundamentals: Recently, Yunlu Wenshan Aluminium Industry released its Environmental Protection Information Disclosure Information Form in January 2022. Its aluminium project is under shakedown test. In January, its output of molten aluminium was 16,797.79 mt, which consumed 31,936.47 mt of alumina and 6,526.66 mt of prebaked anode (net consumption).

Recently, the price of secondary aluminium has risen along with primary aluminium prices. Domestic large secondary aluminium factories raised offers by 100-200 yuan/mt to 22,300-22,600 yuan/mt on March 2, while small and medium-sized factories raised their quotes by 100 yuan/mt to 22,000-22,200 yuan/mt. (Bullish ★)

Spot market: SHFE aluminium hit a high of 23,000 yuan/mt yesterday with the entry of bulls, even as prices still faced downward pressure from bears. Trades in spot market improved, and spot discounts stabilised at around 70 yuan/mt against the SHFE front-month aluminium contract.

To sum up, aluminium smelters in Yunnan, Guangxi, Guizhou and other regions have steadily resumed production, and domestic aluminium production is on the rise, but the total output is still lower than in the same period last year. The import window remains closed as LME aluminium outperforms SHFE aluminium. Downstream consumption is gradually recovering, and the growth rate of aluminium ingot social inventory has slowed down. Aluminium billet inventory has entered destocking cycle. In the short term, the rise in aluminium costs and decline in aluminium supply caused by Russia-Ukraine conflict will support aluminium prices at an elevated levels.