SHFE Aluminium to Fluctuate Rangebound amid Basically Balanced Supply and Demand

SHANGHAI, Jun 6 (SMM) - On the macro front, Caixin’s China manufacturing PMI came in at 48.1 in May, falling short of previous expectations of 48.9, but higher than 46 in April. Since May, the domestic pandemic situation has improved and enterprises in some areas began to resume work and production, which led to a recovery in the manufacturing industry. The State Council urged the implementation of a package of policies and measures to stabilise the economy. San Francisco Fed President Mary Daly recently expressed support for aggressive interest rate hikes to combat high inflation. Dudley, former president of New York Fed, is against the idea of suspending interest rate hike in September.

Fundamentals: According to SMM’s preliminary estimate, the domestic operating aluminium capacity stood below 40.6 million mt at the end of May, and the domestic aluminium output is expected to increase 2.5% year-on-year to around 3.4 million mt in May. With the resumption of production in Gansu and other regions, it is expected that the operating capacity will climb further to 40.75 million mt by the end of June. Shanghai has lifted its COVID lockdown since June 1, and downstream consumption across Jiangsu, Zhejiang and Shanghai has recovered. Spot premiums in Gongyi expanded on the back of robust demand. Downstream purchases in south China hardly improved due to limited increase in the operating rates of local aluminium extruders and collateral scandal. Small and medium-sized downstream enterprises generally took a 1-3 day break for the Dragon Boat Festival. The decline in aluminium ingot social inventories will slow down after the holiday.

The collateral scandal will only have a temporary shock on the aluminium market. Low inventory in China and overseas, slowdown in aluminium supply, as well as growing expectations for consumption recovery in east China, will prevent aluminium prices from falling sharply in the short term. The most-traded SHFE aluminium contract and LME aluminium are expected to run between 20,000-21,300 yuan/mt and $2,700-2,900/mt this week. SMM will keep a close eye on the domestic aluminium consumption and inventory changes.