A Quick Look into Aluminium Fundamentals When LME Aluminium Drop for Three Straight Days

SHANGHAI, Mar 10 (SMM) - LME aluminium has been falling for three consecutive days after refreshing the record of historical high at $4,073.5/mt on March 7 on the back of a market “fever”. As of 13:37 pm Beijing time on March 10, the contract has set a combined drop of 16.3% in three days, while SHFE aluminium recorded a fall of 10.7% in the same period.

The spot market shadowed the moves of futures market, and has been falling for three straight days. As of March 10, SMM A00 aluminium stood at 21,500 yuan/mt, down 2,360 yuan/mt or 9.89% from 23,860 yuan/mt on March 7.

The market is increasingly bearish on aluminium with falling futures prices and narrowing spot discounts, hence the smelters and traders were more active in making shipments. The downstream still fears the price volatility, and refrained from making purchases for the moment. The inventory is expected to see a pivot next week, and the market shall keep an eye on the arrivals and marginal changes in recovering demand.

Overseas supply concerns were the major reason for skyrocketing LME prices. In China, the supply accelerated its recovery process, and the aluminium output is expected to reach 3.3 million mt in March amid steady increase in daily output. The operating capacity is also expected to return to last-year’s level in May. But the high aluminium prices have suppressed downstream demand, which takes time to recover.

It is worth mentioning that the aluminium billet inventory in Guangdong has started to fall more rapidly partly because the demand for aluminium billet rose significantly amid restrictions on the re-smelting of aluminium ingot due to high natural gas prices and restrictions on the use of gas. On the other hand, low conversion margins also attracted some downstream buyers.

The domestic aluminium ingot social inventory totalled 1.14 million mt as of March 10, up 22,000 mt from a week ago. Wuxi (+16,000 mt) and Nanhai (+8,000 mt) were the major contributors to the overall increase. The inventory was flat in Hangzhou, Tianjin, and Linyi, but fell slightly in Gongyi and Shanghai.

Generally speaking, it is reasonable that the market shall correct should there be no further bullish factors in the market. And the market shall await the new price anchoring for guidance.