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Short-Term SHFE Aluminium Expected to Move Between 18,900-19,600 yuan/mt amid Bullish Macro Front and Cost Support
Jun 28, 2022 10:26CST
Source:SMM
Most industrial metals prices dropped amid extensive worries over economic recession. SHFE aluminium fluctuated in a wide range yesterday (June 27) with signs of stabilising. The contract closed the day with a narrow loss of 0.23% to 19,135 yuan/mt.

SHANGHAI, Jun 28 (SMM) – Most industrial metals prices dropped amid extensive worries over economic recession. SHFE aluminium fluctuated in a wide range yesterday (June 27) with signs of stabilising. The contract closed the day with a narrow loss of 0.23% to 19,135 yuan/mt. It is worth noting that SHFE aluminium once dropped to a five-month low of 18,605 yuan/mt in seven months.

Last week's hawkish statement from the Federal Reserve has increased recession fears and the pessimism has put non-ferrous metals prices under pressure, which may lead to the worst performing quarter since the financial crisis in 2008. Some analysts suggest that the fall in non-ferrous metal prices has affected the mining industry.

However, there are also voices that the non-ferrous metals still carry rebound opportunities, as there are still supply constraints in at least some metal varieties for the time being. Meanwhile, BMO Capital Markets analyst Colin Hamilton expects aluminium prices to also gain support from production cuts, as further reduction in primary aluminium production is likely in the coming months, which should provide some support for prices.

This follows the planned shutdown of Alcoa's Hawesville aluminium smelter from June 27 in response to high energy prices, and Century Aluminium's announcement last Wednesday that it will close a 200,000-mt-a-year aluminium smelter in Kentucky over the next nine to 12 months, citing soaring electricity prices.

Back to the spot market, the spot price of aluminium ingot stood at 19,170-19,210 yuan/mt as of June 27, with an average of 19,190 yuan/mt, up 30 yuan/mt from the last trading day.

Sources with front-month invoices were firm in quotations approaching the end of the month, and the market mainly traded sources with next-month invoices. Aluminium prices in Foshan were in discounts of 5 yuan/mt over SHFE 2207, an average of 19,160 yuan/mt, up 30 yuan/mt from last Friday. SHFE aluminium moved in a narrow range in afternoon trading, and the spread between SHFE 2207-2208 expanded. The downstream was generally wait-and-see with pessimism on the market outlook. The actual transactions were mainly in the range of 19,100-19,170 yuan/mt.

The fundamentals of aluminium changed little recently with the supply rising and demand weakening.

As of June 23, the average weekly operating rate of major downstream processing companies dropped 0.4 percentage point from a week ago to 66.7%, and the orders for construction extrusion were low amid the poor real estate. The automobile and new energy sectors are relatively active with full resumption of work and production in Shanghai as well as owing to relatively supporting policies.

Meanwhile, SMM aluminium ingot social inventory totalled 746,000 mt as of June 27, down 5,000 mt from last Thursday and down 17,600 mt from the end of May. Aluminium ingot inventory kept falling, but the speed has slowed down.

LME aluminium inventory was also on the downward trajectory, with the latest reading at 388,750 mt, a new low in 21 years.

To sum up, commodity prices have been falling amid pessimism on the macro front, so are aluminium prices with resistance at 19,600 yuan/mt. Market transactions were thin recently. Nonetheless, the market players shall take into account the boost of various stimulus packages as well as the narrow rebound after aluminium prices drop below the break-even point. SHFE aluminium is expected to move between 18,900-19,600 yuan/mt in the near term.


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