SMM Predicts that the Aluminium Prices will Move under Pressure in May Because of Various Bearish Factors

SHANGHAI, May 6 (SMM) - On the first two trading days of May, SHFE aluminium once dropped nearly 4%.
In the spot market, on May 5, SMM A00 aluminium was quoted at 20,700-20,740 yuan/mt, 90 yuan/mt lower than the pre-holiday level.

After the Labour Day holiday, downstream mainly held a wait-and-see attitude, and the premiums fell. Today, SMM Foshan aluminium prices were quoted at discounts of 5 yuan/mt over the 2205 contract, 15 yuan/mt lower than the pre-holiday level. The average spot price was 20,750 yuan/mt, down by 110 yuan/mt compared with that before the holiday. The futures prices rose slightly later, and the traded price of SMM Foshan aluminium rose from the discounts of 30 yuan/mt to the premiums of 20 yuan/mt, and the absolute transaction price moved between 20,720-20,770 yuan/mt.
On the fundamentals, the social inventories of aluminium across major Chinese markets totalled 1.03 million mt as of May 5, up 46,000 mt WoW, but 82,000 mt lower than a year ago. 

Concentrated arrivals during the Labour Day holiday pushed up the inventory in Gongyi. Henan stepped up restrictions on truck transportation due to the recurrence of the pandemic, but arrivals were little affected as cargoes were shipped mainly by railway. Due to complicated transportation procedures, cargo pick-up from warehouses in Henan was mainly done by local buyers. Inventory in Nanhai rose mainly due to the increase in arrivals during the holiday. Inventory in Wuxi fell slightly because of the gradual recovery of logistics. Inventories in Tianjin, Chongqing, Linyi and other regions were stable.
Domestic aluminium billet inventory stood at 128,600 mt on May 5, an increase of 22,700 mt or 21.45% from last Thursday.

According to SMM research, large arrivals from Yunnan during the holiday and stagnant trades caused inventory in Foshan to surge. Except for Wuxi, the transactions in other areas during the holidays were also average, and the inventory in these regions increased to varying degrees.

Generally speaking, on the supply side, on one hand, the pandemic outbreak hindered the shipment of some aluminium plants; on the other hand, centralised arrivals will appear after the Labour Day holiday, which will put huge pressure on the inventory again. On the demand side, the downstream operating rates rose as the pandemic got eased somewhat. In the short term, the US dollar index fell as the US Fed raised the interest rates, while the domestic fundamentals are still under pressure, and the aluminium prices may remain relatively weak.

Looking forward to May, SMM believes that the mismatch between aluminium supply and demand in China will continue. In addition, there are many bearish factors in the market due to the macro stimulus such as the interest rate hikes in the US. Therefore, the aluminium prices in China will bear pressure in May. The market shall Pay attention to the recovery of domestic downstream consumption and the impact of overseas energy trends on the overseas market. It is estimated that SHFE aluminium will move between 19,000-22,500 yuan/mt in May.
 

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.