LME Aluminium Jumped Over 5% as Sky-rocketing Natural Gas Prices Fuel Supply Concerns

SHANGHAI, Mar 24 (SMM) - Overnight, the most-traded SHFE 2205 aluminium contract opened at 23,260 yuan/mt, with the highest and lowest prices at 23,435 yuan/mt and 23,130 yuan/mt before closing at 23,365 yuan/mt, up 385 yuan/mt or 1.68%. LME aluminium opened at $3,417/mt on Wednesday and closed at $3,685/mt, an increase of $179/mt or 5.12%.

Macro front:

On March 23 local time, Russian President Vladimir Putin made a decision that the supply of natural gas to European countries will be settled in rubles. Putin asked Russia's central bank and government to formulate rules for ruble settlements with European countries within a week. European natural gas prices soared 34% following the news. (Bullish factor ★);

Cleveland Fed President said the US Fed needs several 50 basis point rate hikes this year, and also said that has was not worried about starting balance sheet reductions and raising rates at the same meeting. (Negative factor ★)

Fundamentals:

1. Alumina market: The regional supply-demand imbalance and increasing  alumina exports amid the widening price difference between China and overseas will benefit alumina prices. However, the release of new alumina capacity on a large scale in early April could potentially weigh on alumina prices. The market still needs  large-scale transactions for price guidance. (neutral)
2. Aluminium billet market: The conversion margins across mainstream markets dropped 20-30 yuan/mt yesterday. (Negative factor ★)
3. Aluminium scrap market: Aluminium scrap prices were stable yesterday, but trades were sluggish due to the impact of the pandemic. (Negative factor ★)
4. Spot market: Sellers held offers firm, while traders and downstream buyers entered the market, improving market activities. Spot discounts were flat at 70 yuan/mt.  

Summary: On the supply side, the resumption of domestic aluminium production has accelerated, but the output has not reached the level of the same period last year; overseas energy prices have risen again, exacerbating market concerns about output cuts by aluminium smelters. The domestic aluminium ingot social inventory continued to decline this week, providing certain support to aluminium prices. It is expected that the short-term aluminium price will remain at a high level. The market still needs to pay attention to how the overseas energy crisis will evolve, inventory changes and the impact of the pandemic on transportation of upstream and downstream enterprises.

Disclaimer:

The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.