SHFE Aluminium Still under Downward Pressure amid Regional Supply-Demand Imbalance

SHANGHAI, Apr 11 (SMM) - The most-traded SHFE 2205 aluminium contract opened at 22,735 yuan/mt on the first day after the Qingming Festival, with the weekly low and high at 21,450 yuan/mt and 22,740 yuan/mt respectively before closing at 21,825 yuan/mt on Friday afternoon, down 815 yuan/mt or 3.6% on the week. LME aluminium opened at $3,424/mt last Monday, with the weekly low and high at $3,340/mt and $3,515/mt respectively before trading at $3,402/mt as of CST 15 on Friday, down 2.1% on the week.

On the macro front, the US Federal Reserve continued to release hawkish signals, which heightened concerns about reduced liquidity overseas and sent the US dollar index to a two-year high. Overseas energy prices fluctuated widely as Western countries’ sanctions on Russia continued to escalate, and the overall macro atmosphere was bearish.

In terms of fundamentals, SMM data showed that China’s daily average aluminium output increased by 1,700 mt MoM to 106,900 mt in March. The domestic aluminium output stood at 3.32 million mt in March, and the year-on-year decline narrowed to 0.92%. The domestic operating aluminium capacity stood at 39.97 million mt as of the beginning of April, and is estimated to climb to around 40.3 million mt by the end of this month, which will exceed the level in the same period last year. Downstream producers in some areas were forced to curtail their production under the impact of the pandemic. However, given the strong new orders and sufficient backlog orders, downstream production could recover rapidly once the pandemic is brought under effective control.

From a technical point of view, the most-traded SHFE aluminium contract may rebound slightly before returning to the downward track this week. The weekly K-line of the CRB commodity index rose 0.5%, while the SMMI index fell 0.82% week-on-week last Thursday. Last week, the CRB commodity index moved downwards after a higher opening and fell below the 5-day moving average. It is expected that the CRB commodity index will continue to fall this week. The random forest & time series model predicts that the price range of the most-traded SHFE aluminium contract will be [21455, 22680] this week, and the extreme price range will be [21215, 22885]. The LSTM & time series model predicts that the range of SMM A00 aluminium average price will be [21420, 22790] this week, and the extreme range will be [21230, 22900].

The futures technical indicators suggest that the most-traded SHFE aluminium contract may move downwards after a mild rally this week. Based on the 4-hour K-line, SMM observed a total of 40 technical indicators, of which 11 were neutral, 15 were bullish, and 14 were bearish. A series of momentum reversal indicators such as BOLL, Donchian, ENV, WR, BIAS and CCI sent strong signals of being oversold, suggesting that the prices may rebound in the short term. However, moving average indicators such as EXPMA, PUBU, EMA2, and SMA sent medium-term bearish signals.

The domestic aluminium ingot social inventory has entered the accumulation cycle as a result of weaker consumption and growing supply, putting pressure on SHFE aluminium prices. However, demand will recover rapidly and inventory will decline again once the pandemic situation in mainstream consumption areas improves. The regional supply-demand imbalance caused by the pandemic will extend into this week. The most-traded SHFE aluminium contract and LME aluminium are expected to move between 21,200-22,500 yuan/mt and $3,200-3,600/mt respectively this week.