Low Inventories to Continue to Support Aluminium Prices, Pandemic Disrupted Downstream Production

SHANGHAI, Mar 28 (SMM) – The most-traded SHFE 2205 aluminium contract climbed from 22,720 yuan/mt last Monday to 23,465 yuan/mt on Thursday amid the escalation of Russia-Ukraine war before closing at 23,090 yuan/mt on Friday afternoon, up 260 yuan/mt or 1.14% on the week. LME aluminium opened at $3,417/mt last Monday and hit a high of $3,742/mt before trading at $3,586.5/mt as of CST 15 on Friday, up $141/mt or 4.1% on the week.

US Fed Chairman Powell reiterated the Federal Open Market Committee's stance that the US Fed will continue to raise interest rates until inflation is under control. Powell said that the US Fed would raise interest rates by 50 basis points in a single day if necessary. Russian President Vladimir Putin made a decision that the supply of natural gas to European countries will be settled in rubles. After the Russian stock market was suspended for a record 18 trading days, Russia's central bank announced that it would resume some stock trading and ban short selling from Thursday March 24. On March 23 local time, the Office of the United States Trade Representative said it would restore tariff exemptions for some imported goods from China.

In terms of fundamentals, the domestic aluminium supply was largely stable last week. SMM estimates that the domestic aluminium output will be 3.3 million mt in March, which is still lower than in the same period last year. The domestic aluminium production is still in the ramp-up stage, and the output is expected to increase on a YoY basis in Q2. As the import window of aluminium ingots was still closed, the import volume fell sharply. The total aluminium supply was relatively low in Q1. The social inventory of aluminium ingots continued to decline. Recently, there have been outbreaks of COVID in many parts of China. Aluminium processing enterprises in Shandong’s Binzhou, Fujian’s Quanzhou, Tianjin and other regions were forced to reduce their production due to the pandemic. Transportation in many regions has been disrupted by the pandemic.  

From a technical point of view, the most-traded SHFE aluminium contract may correct down this week. The weekly CRB commodity index rose 4% week-on-week last week, and the SMMI index rose 4.96% year-on-year last Thursday. However, the 4-hour k-line of the most-traded SHFE aluminium contract showed an M pattern, and fell back after rising initially last Thursday, and the trading volume did not increase. It is expected that the most-traded SHFE aluminium contract will fluctuate downwards this week, but may find support near the mid-end of the Bollinger Bands. The random forest & time series model predicts that the price range of the most-traded SHFE aluminium contract will be [22435, 23095] this week, and the extreme price range will be [22310, 23465]. The LSTM & time series model predicts that the range of SMM A00 aluminium average price will be [22590, 23030] this week, and the extreme range will be [22350, 23450].

The futures technical indicators suggest that the most-traded SHFE aluminium contract may move downwards this week. Based on the 4-hour K-line, SMM observed a total of 40 technical indicators, of which 22 were neutral, 5 were bullish, and 13 were bearish. The upper shadow touched the upper end of the Donchian Channel last Thursday, and the SHORT indicator fell below the moving average. The most-traded SHFE aluminium contract may fall back slightly to the EMA20 moving average this week.

On the one hand, high energy prices and low inventory in China and overseas will continue to support aluminium prices at highs in the short term. On the other hand, high aluminium prices and the pandemic may affect downstream consumption and lead to slight downward corrections in aluminium prices. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 22,300-23,300 yuan/mt and $3,400-3,800/mt respectively this week.

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.