SHANGHAI, Sept 23 (SMM) - On September 21, the US Federal Reserve concluded the two-day monetary policy meeting with a 75 basis-point interest rate hike, which raised the target range of the federal funds rate to between 3%-3.25%. This was the third time in a row this year that the Fed had raised interest rates by 75 basis points. According to the latest "Fed Watch" of CME Group, the probability of the Fed raising interest rates by 75 basis points in September was 82% while the probability of 100 basis points stood at merely 18%. Since the interest rate hike was in line with market expectations, and the aluminium prices rose sharply on September 22, recovering the previous losses before the interest rate hike.

Review of the interest rate hikes this year shows that aluminium prices seem to fluctuate greatly before and after interest rate hike announcement. Basically, the market are moderately bearish on aluminium prices before the interest rate hikes, while once the rate hikes are announced, the increase in prices will repair the losses in the short term.

In the spot market, the market no longer stood on the sidelines as they were when the aluminium price was relatively low before the interest rate hike. When the morning session ended, the aluminium price stood at 18,700 yuan/mt with active trades in the market. The downstream buyers were more willing to purchase. According to SMM analysis, the downstream enterprises were cautious about purchasing previously because the market was concerned about a higher-than-expected interest rate hike. After the interest rate hike was announced in line with expectation, the aluminium prices rebounded. The traders believed that the aluminium prices were likely to have stronger support with potential production cuts, hence the trades in the market were brisk. In addition, with the National Day holiday approaching, downstream enterprises had stocking demand, which boosted spot transactions. However, according to feedback from traders, the downstream enterprises may choose to stockpile when aluminium prices is at a low level next week, the last week before the National Day holiday.

SMM surveyed indicated that the operating rates and new orders of most enterprises in September changed little compared with July and August. The downstream sector was still dominated by stockpiling as needed. Moreover, the market has accepted the fact that the aluminium output in Yunnan might be reduced by 20%, hence the aluminium prices may trend lower in the future. In addition, as recent fluctuations in aluminium prices led to the frequent alternation of open and close in the import window, the imported aluminium will also put pressure on aluminium prices from the supply side. Whether the downstream and terminal demand can turn around in October is still the key to the support for aluminium prices. Nevertheless, the market is still optimistic about the improvement in demand considering the ongoing peak season.