Power Rationing in Yunnan Shall Stay on the Radar of Aluminium Market Players

SHANGHAI, Sep 6 (SMM) - Macro front: 1) People’s Bank of China: From May 15, the foreign exchange deposit reserve ratio of financial institutions will be lowered by 2 percentage points to 6%. (neutral) 2) Liu Guoqiang, Deputy Governor of the Industrial and Commercial Bank of China: We will ensure a sound monetary policy, strengthen the foundation for economic recovery and development, do not flood the market with excess liquidity and do not overdraft the future. In addition, the long-term trend of RMB is clear, and the world's recognition of the Chinese currency will continue to enhance in the future. However, two-way fluctuation is the norm in the short term, and there will be no "one-sided market". (bullish ★)

Fundamentals: 1) Bauxite: Bauxite price sin north China dropped slightly, and some alumina refineries in Shanxi and Henan controlled the production, with less demand for domestic bauxite. Therefore, the traders surrendered part of the profits when trading the bauxite.

2) Alumina: The supply of alumina is not stable. The new capacity accelerates the grasp of market share, while the high-cost capacity is unsustainable with production cuts. With the subsequent major conferences to be held in Beijing, it is possible that the northern region will receive strict environmental monitoring and safety supervision in advance. The production and delivery of raw materials may be affected, and the emission of alumina roasting may also be closely watched. It is expected that the operating rates of alumina refineries in north China may decline further. (bullish ★)

3) Overseas news: Alcoa's Lista smelter in Norway will reduce its aluminium capacity by about 31,000 mt, and Dutch aluminium producer Aldel will reduce its secondary aluminium capacity by 50,000 mt. According to SMM statistics, the cumulative overseas aluminium production cuts in 2021-2022 have reached 1.476 million mt (bullish ★)

Inventory: Aluminium ingot: On September 5, 2022, SMM aluminium ingot social inventory stood at 681,000 mt, down 2,000 mt from last Thursday. (bullish ★) Aluminium billet: On September 5, 2022, SMM aluminium billet social inventory recorded 118,600 mt, down 1,100 mt from last Thursday. (bullish ★)

Spot: The spot goods were in discounts of 30 yuan/mt over SHFE 2209 in east China, or discounts of 20-10 yuan/mt over SMM A00 aluminium ingot in Wuxi region.  The traders were active in making shipments with aluminium prices rising in morning trade yesterday September 5, but the transactions were thin and the discounts showed signs of expanding. 

Summary: The domestic aluminium supply is frequently disturbed, and the aluminium prices corrected last Friday and this Monday. If the power cut in Yunnan leads to the reduction of aluminium production, the SHFE aluminium will gain continuous upward momentum. Otherwise, SHFE aluminium shall look to downstream consumption for potential momentum.