SMM Insight into Short-term Aluminium Price Outlook amid Tight Supply and COVID-Induced Downstream Output Cuts

SHANGHAI, Mar 29 (SMM) - The upward cycle of SHFE aluminium prices that started in mid-March has come to an end. SHFE aluminium has entered a stage of corrections since last Friday. As of the end of today's daytime trading session, the most-traded SHFE aluminium contract closed down slightly by 0.22% at 22,960 yuan/mt.

The price of A00 aluminium in the spot market also entered an upward trajectory from mid-March. On March 29, the price of SMM A00 aluminium stood at 23,010 yuan/mt, an increase of 90 yuan/mt from the previous day.

The aluminium price fluctuated at a high level due to tight global supply. At the same time, the domestic alumina price rose slightly, while electricity price was generally lower than before, which expanded aluminium smelters’ profits in 2022. SMM data showed that Chinese aluminium smelters’ profits have remained at more than 5,000 yuan/mt recently.

LME aluminium inventory fell further to a record low of 670,000 mt on March 28, while the aluminium ingot social inventory in China stood at 1.05 million mt, up 13,000 mt from last Thursday. The increase was mainly contributed by Wuxi (+11,000 mt due to concentrated arrivals of cargoes) and Gongyi (+10,000 mt due to pandemic-induced poor sales).

In terms of alumina, as of last Friday, the SMM weighted alumina index stood at 2,973 yuan/mt. Market participants held different views on how the expected increase in exports, sharp decline in imports and massive release of new alumina capacity will affect the domestic supply-demand balance. SMM predicts that the domestic alumina market will only see a slight surplus of about 90,000 mt in March, hence the alumina prices have seen no sharp rise or fall recently.

In terms of electricity costs, since February, the National Development and Reform Commission has frequently emphasised that it will ensure the stable supply and price in the coal market. With the coal market stabilising and the end of the heating season, the electricity price has fallen back.

Factors such as energy and geopolitics have sustained expectations for overseas aluminium production reduction. The domestic aluminium production resumption has accelerated, but the output is still lower than a year ago. The overall aluminium supply is still relatively tight. The sudden outbreak of the pandemic in many places in China has disrupted the downstream production, causing some to delay their pick-up of cargoes, hence the shipments of aluminium ingots and aluminium billets fell sharply. In the short term, the small accumulation of domestic aluminium ingot social inventories and the pandemic will remain bearish for aluminium prices. However, as the global supply gap is unlikely to reverse any time soon, aluminium prices will fluctuate widely.

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.