SMM Monthly Aluminum Price Forecast for April 10-May 10

SHANGHAI, Apr 13 (SMM) - The most-traded SHFE aluminium contract moved down from 23,465 yuan/mt due to falling expectations for overseas production reduction and mostly fluctuated between 22,000-23,000 yuan/mt during March 11-April 10. In late March, the massive outbreak of COVID-19 in many parts of China disrupted downstream production and led to regional supply-demand imbalance. The most-traded SHFE aluminium contract plummeted in early April, and closed at 21,005 yuan/mt as of April 11, down 730 yuan/mt or 3.36% from a month ago. Three-month LME aluminium moved between $3,219.5-3,742/mt during March 11-April 10, and traded at $3,289/mt in the afternoon of April 11, down 2.7% on the month.

From a macro perspective, Caixin’s composite PMI and PMI for the service industry both declined significantly in March, which was basically in line with the previously released official PMI data, indicating that the recent pandemic has hurt business activities. The Ukrainian president said the Russian leader was insincere about reaching a peace deal, and the Russian-Ukrainian talks could be deadlocked again. The EU agreed to ban imports of Russian coal, but the implementation will be delayed until August. The minutes of the US Fed’s March policy meeting were more hawkish than expected. The US Fed emphasised the severity of the inflation situation and expressed the possibility of raising interest rates by 50 basis points for many times. The US dollar index shored up, and non-ferrous metals were under pressure.

In terms of domestic fundamentals, the aluminium supply continued to rise in March. The re-starts of closed capacity and release of new capacity accelerated, led by Yunnan. The domestic operating aluminium capacity was close to 40 million mt in early April. In March, the year-on-year decline in domestic aluminium output narrowed to about 0.9%, and the daily average output increased by 1,700 mt MoM to 106,900 mt. High profits are encouraging smelters to increase their production, and the output in April is expected to exceed the level of the same period last year. Downstream industries reported high operating rates in early March, and the consumption of extrusion and alloys was strong. However, in late March, the pandemic situation in Shandong, north-east China, Hebei, Jiangsu, Zhejiang and Shanghai worsened, which hindered transportation and forced some downstream producers to stop or reduce their production. The domestic aluminium ingot social inventory entered the accumulation cycle at a time when should have been the peak season. Due to slower logistics, some smelters reported high inventory and large quantities of aluminium ingots were held up halfway.

The market shall closely watch how the ongoing pandemic controls will affect supply and consumption. If the inventory continues to grow, aluminium prices will still be under pressure. However, downstream production and procurement will recover rapidly once the pandemic situation improves, which will allow aluminium prices to rebound. In the short term, the contradiction between supply and demand in the domestic aluminium market will remain prominent, but the overseas energy crisis and expected output cuts overseas may help limit the downside room of SHFE aluminium prices. The most-traded SHFE aluminium contract is expected to move between 20,000-23,000 yuan/mt during April 11-May 10. Spot discounts may narrow or even turn into small premiums due to limited amounts of cargoes available in the market under the impact of the pandemic.