RRR Cuts and Expectations for Demand Recovery to Support SHFE Aluminium at Highs  

SHANGHAI, Apr 18 (SMM) - Macro front: China's State Council said in the middle of the week that monetary policy tools such as reserve requirement ratio (RRR) cuts shall be employed in a timely manner. This was followed by the People's Bank of China (PBOC)’s announcement of RRR cuts last Friday. Chinese president Xi Jinping said that the prevention and control of COVID-19 cannot be relaxed and that China shall adhere to scientific, accurate and dynamic clearance of the pandemic so as to minimise its impact on economic and social development. The US Fed adopted an even more hawkish stance. The New York Fed president said a faster pace of rate hikes, including a 0.5 percentage point hike, was a "reasonable option" given the current low level of interest rates. 
Fundamentals: According to SMM's preliminary estimates, the domestic operating aluminium capacity will climb to 40.3 million mt at the end of April, and the output is expected to exceed the level of the same period last year. However, as the shipments of aluminium smelters were disrupted by the pandemic, the supply in the spot market was tight. Downstream operating rates in Shandong, Wuxi and other regions picked up. Traffic in many regions has improved under the efforts of local governments. The market is anticipating a recovery of consumption. Trades in the spot market improved due to approaching delivery of long-term orders.
The RRR cuts and expected recovery of consumption will underpin SHFE aluminium prices at highs in the short term. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 21,000-22,500 yuan/mt and $3,200-3,500/mt respectively this week.