SHANGHAI, Mar 4 (SMM) - The most-traded SHFE 2204 aluminium contract opened at 23,810 yuan/mt overnight, and hit a high of 23,870 yuan/mt, but then fell back to 23,525 yuan/mt before closing at 23,655 yuan/mt, up 145 yuan/mt or 0.6%. LME aluminium opened at $3,575.5/mt on Thursday and closed at $3,766.5/mt, an increase of $190.5/mt or 5.33%.

On the macro front, Ukraine agreed to establish humanitarian channels for civilians in the second round of peace talks, but said that the expected results of the negotiations were not obtained, and the two sides agreed to hold the third round of negotiations as soon as possible. Last night, the three major U.S. stock markets closed down across the board, with the Nasdaq down 1.6%. (Bullish factor ★)

Freight rates for Baltic tankers on European routes rose by $30,000 to $241,000 per day, the highest since at least 2008. (Negative factor ★)

 In terms of fundamentals, the domestic aluminium billet inventory stood at 241,500 mt on March 3, a drop of 19,200 mt or 7.35% from a week ago, marking three consecutive weeks of decline. (Bullish factor ★)

SMM data showed that the domestic aluminium ingot social inventory totalled 1.12 million mt as of March 3, which was 21,000 mt higher than last Thursday. Wuxi and Nanhai were the two major contributors. (Negative factor ★)

The operating rates of major aluminium processing enterprises in China continued to pick up this week, with an increase of 1.7 percentage points from a week ago to 69.8%. The operating rates in the primary aluminium alloy sector increased significantly as orders increased with onset of the traditional peak season. (Bullish factor ★)  

Spot market: Spot discounts expanded to 110 yuan/mt yesterday amid rising SHFE aluminium prices, and downstream wait-and-see sentiment was still strong.

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.