SHANGHAI, Aug 2 (SMM) - In the first trading day in August, SHFE aluminium, against the broad non-ferrous metal market with extensive growth, ended its four-day winning streak, and once dropped 3% in day trading. The contract finally closed the day at 18,205 yuan/mt, down 2.54%. LME aluminium also led the drops over the LME market, and recorded a loss of 1.77% as of 17:47 Beijing time, to $2,444.5/mt.

There has also been a sharp decline in the spot market. The spot price of SMM A00 aluminium ingot stood at 18,280-18,320 yuan/mt as of August 1, with an average of 18,300 yuan/mt, down 320 yuan/mt from the previous trading day.

SMM aluminium price in Foshan showed discount of 140 yuan/mt over the SHFE 2208 contract, down 5 yuan/mt from last Friday, and the average spot price recorded 18,180 yuan/mt, down 330 yuan/mt from last Friday. In the second trading session yesterday, aluminium futures dropped, and the cargo holders adjusted their quotes based on the futures market. The actual transaction price was in premiums of 80 yuan/mt to discounts of 20 yuan/mt over SMM Foshan price, and the transaction prices stood between 18,100-18,160 yuan/mt.

Currently, the market focus is still on the fundamentals.

In the overseas markets, the problem of high energy prices is still unsolved, which offers certain support for aluminium prices. And the expected production reduction resulted in from high energy prices is like a Spartan sword hanging overhead. Although overseas aluminium plants’ electricity supply is in the form of long-term orders, the power plants now suffer heavy pressure from high energy prices. Hence it is unclear how the power plants will tackle this issue in the long run. 

China, aluminium ingot inventories have shown a trend of accumulation this week. According to SMM statistics, as of August 1, the domestic social inventory of aluminium was 678,000 mt, an increase of 7,000 mt from last Thursday and a decrease of 81,000 mt from the same period last year. At present, the market demand was poor. After the goods in transport arrive at the social warehouses, the social inventory is likely to rise further.

On the demand side, according to SMM survey, the average operating rate of leading downstream processing enterprises last week fell slightly by 0.2 percentage point from the previous week to 66.1%. The operating rates of aluminium wire and cable as well as aluminium extrusion continued to decline. The operating rates of aluminium plate/sheet, aluminium foil and primary alloy continue to stabilise. Tt is expected that in the short term, the operating rates of leading aluminium processing enterprises will remain low in the context of insufficient demand.

On the supply side, domestic aluminium smelters in south-west China have suffered losses, and some in Sichuan reduced the production due to staggered production use. Therefore, the operating aluminium capacity only rose slightly in July.

In general, the pressure on the supply side still exists, and the off-season on the demand side has not yet ended, hence aluminium prices now lack upside momentum, coupled with accumulating aluminium social stocks. Although aluminium prices rebounded after the short-term bearish macro factors priced in, the sustainability will be subject to the fundamentals. SMM believes that in the short term, aluminium prices will remain volatile.