SMM Forecast for Short-Term and Long-Term Aluminium Prices amid Low Inventory and Growing Supply

SHANGHAI, May 25 (SMM) - As demand failed to meet expectations, SHFE aluminium declined after three consecutive days of gains, closing down 1.99% at 20,465 yuan/mt yesterday.

Fundamentals

Domestic aluminium inventories have continued to decline since May. The aluminium ingot social inventory across China’s eight major markets totalled 941,000 mt as of May 23, down 24,000 mt from a week ago and 21,000 mt from the end of April. The social inventory of domestic aluminium billets was 129,850 mt, a decrease of 6,600 mt from last Thursday, of which the decline was larger in Foshan. At the same time, LME aluminium inventories fell by 7,025 mt to a total of 497,200 mt, hitting a new low in recent years. Low inventories supported aluminium prices.
 The domestic aluminium output was 3.3 million mt in April, up 1.47% YoY, SMM data showed. The domestic operating aluminium capacity stood at 40.48 million mt/year as of early May, while the installed capacity stood at 44.17 million mt/year, and the average operating rate stood at 91.6%.

Entering May, the domestic operating capacity continued to increase slightly. The production capacity in Yunnan and Inner Mongolia has been restored and continued to increase. In H2, there will be concentrated production resumption in Qinghai and Guangxi. The growth rate of aluminium supply slowed down.

Most aluminium smelters maintained stable operation last week. A smelter in Yunnan shut down approximately 200,000 mt of aluminium capacity on May 6 in the wake of an accident. With the restarts of closed capacity, domestic aluminium output maintained year-on-year growth. Demand has not fully recovered from the pandemic and longs were still cautious about entering the market. In the short term, the low domestic and overseas aluminium inventories and expectations for improvement of consumption are expected to support aluminium prices. However, in the medium and long term, increasing supply will pressure aluminium prices.