SHANGHAI, Jun 6 (SMM) - With work and production continuing to resume after the pandemic situation has improved, there is strong expectations for recovery of downstream demand, allowing SHFE aluminium to gain over 3% to 21,220 yuan/mt on the first trading day after the Dragon Boat Festival. This is the highest in over a month.

On a macro level, China's manufacturing PMI came in at 49.6% in May, an increase of 2.2 percentage points from the previous month. 

Fundamentals:

The average operating rate across major aluminium processing enterprises increased 4.6 percentage point from a week ago to 66.3% as of June 2. Aluminium extrusion sector saw four consecutive weeks of growth thanks to improved pandemic situation. The operating rates in aluminium foil and aluminium cable sectors also rose to varying degrees this week, mainly driven by the lifting of COVID lockdown in Shanghai. Inquiries from overseas buyers picked up, and domestic enterprises were more willing to take export orders following the drop in ocean freight. 

The aluminium ingot social inventories across China’s eight major markets totalled 874,000 mt as of June 6, down 8,000 mt from last Thursday. The collateral scandal triggered pandemic-induced cargo pick-up from warehouses last week, with the weekly shipments out of warehouses rising to 188,000 mt, a new high for this year. The overall inventory decline was led by a drop of 20,000 mt in Wuxi. Inventory in Gongyi rose slightly due to arrivals during the Dragon Boat Festival. Inventory in Foshan was little changed as some local warehouses suspended operations in the wake of collateral scandal.

The domestic aluminium supply is expected to increase significantly in June. There are strong expectations for consumption recovery, and social inventories of aluminium ingots are continuously destocking. A mix of bullish and bearish factors will keep aluminium prices volatile in the short term. The market shall closely watch how the inventory changes, as well as domestic and overseas macro policies will affect market sentiment.