Aluminium Prices Gain Support from Low Inventory

SHANGHAI, Mar 22 (SMM) - Futures market: Overnight, the most-traded SHFE 2205 aluminium contract opened at 23,105 yuan/mt, with the highest and lowest prices at 23,210 yuan/mt and 23,060 yuan/mt before closing at 23,155 yuan/mt, up 130 yuan/mt or 0.56%. LME aluminium opened at $3,417/mt on Monday and closed at $3,522/mt, an increase of $134/mt or 3.96%.

Macro: 1) On Monday afternoon, the Kremlin said that no agreement has been reached in the negotiations with Ukraine. According to representatives of the Ukrainian side of the Russian-Ukrainian talks, Russia and Ukraine held talks for about an hour and a half that day, from 10.30am to 12pm Kiev time, after which the two sides continued their discussions in a working group format. (Bullish) 2) Fed Chairman Jerome Powell said it is a good bet to conclude that we need to take more action quickly. If needed, the Fed will raise rates by more than 25 basis points. If the Fed needs to raise rates above the neutral rate, we will do so. (Bearish)

Fundamentals: 1) As of March 21, SMM China aluminium social inventory totalled 1.06 million mt, down 28,000 mt from last Thursday March 17, with Gongyi, Nanhai and Wuxi contributing most of the declines. The inventory in Linyi was flat, while Tianjin saw slightly rising inventory amid added arrivals over the weekend. (Bullish) 2) According to the latest customs data, China's imports of bauxite (bauxite ores and its concentrates) amounted to 10,305,013 mt in February, down 3.63% from the previous month and up 19.2% from the same month last year. (Neutral) 3) According to customs data, China imports of unwrought aluminium alloys in February 2022 amounted to 91,900 mt, an increase of 60.2% YoY and a decrease of 21.1% MoM. (Neutral) 4) According to customs data, 81,900 mt of aluminium scrap were imported in February 2022, an increase of 115% YoY and a decrease of 35.75% MoM. (Neutral)

Spot market: The discounts over SHFE contract expanded slightly Monday morning, while the downstream purchase slowed down in east China due to the pandemic. The transaction with traders was relatively active. The traded discounts were around 60 yuan/mt over SFHE contract, up 20 yuan/mt from last Friday.

Summary: Currently, domestic operating aluminium capacity has been rising, but the output still falls behind that of the same period last year. The transport efficiency dropped due to pandemic. SMM aluminium ingot social inventory dropped 28,000 mt to 1.06 million mt from last Thursday, underpinning aluminium prices. Aluminium futures prices may rise slightly recently amid low inventory.