SHFE Aluminium Likely to Rebound Following Digestion of Bearish Events and Accident at a Smelter

SHANGHAI, May 16 (SMM) - On the macro front, the US CPI in April increased by 8.3% year-on-year, still at a 40-year high. The US manufacturing PMI came in at 55.4 in April, which was lower than expected and the data in March. The euro zone’s manufacturing PMI was 55.5 in April, falling for the third consecutive month. The US dollar index hit a new high since the end of 2002. China’s outstanding social financing stood at 326.46 trillion yuan in April, a year-on-year increase of 10.2%. China’s newly added social financing stood at 910.2 billion yuan in April, down 946.8 billion yuan YoY.

Fundamentals: SMM data showed that the domestic aluminium output in April was 3.3 million mt, a year-on-year increase of 1.4%. In the future, the growth rate of domestic operating aluminium capacity will slow down, and the operating capacity is expected to reach around 41.3 million mt by the end of the second quarter. The domestic aluminium output in the second quarter is expected to total 10.1 million mt, a year-on-year increase of 3.3%. The domestic aluminium supply will grow significantly in the medium and long run. Most of the domestic downstream enterprises resumed their production after the Labour Day holiday. The operating rates in Jiangsu, Zhejiang and Shanghai picked up slightly after the impact of the pandemic eased. Downstream buyers rushed to restock after spot aluminium prices hit a low of 19,640 yuan/mt. Aluminium ingot social inventory extended declines.   

The market has basically digested pessimistic macro factors and fundamentals, and will shift its attention to the recovery of consumption. This, coupled with an accident at an aluminium smelter, may boost aluminium prices. The most-traded SHFE aluminium contract and LME aluminium are expected to move between 19,500-21,500 yuan/mt and $2,700-2,900/mt respectively this week. SMM will keep a close eye on the changes in aluminium supply and downstream consumption.