SHFE Aluminium to Still Have Upward Potential in the Short Term amid Low Inventory and Positive Macro Front

SHANGHAI, Nov 14 (SMM) – The most-traded SHFE 2212 aluminium contract opened at 18,500 yuan/mt last Monday, with its weekly low and high at 18,190 yuan/mt and 18,945 yuan/mt respectively before closing at 18,755 yuan/mt as of CST 15:00 on Friday, up 255 yuan/mt or 1.38% on the week. LME aluminium opened at $2,344/mt last Monday, with its weekly low and high at $2,268/mt and $2,394/mt respectively before trading at $2,357/mt as of CST 15:00 on Friday, up $13/mt or 0.56% on the week.

The macro front was bullish last week. The US October CPI, which was released last Thursday night, grew less than expected, triggering expectations for a slowdown in US interest rate hikes. Last Friday, China issued the Notice on Further Optimising COVID-19 Prevention and Control Measures in A Scientific and Targeted Manner, boosting market confidence.

Fundamentals: The domestic aluminium supply remained stable as a whole last week. Guangxi Laibin Yinhai Aluminium’s 250,000 mt/year technical transformation project was completed and put into operation, but the capacity release has been slow, with limited output to be yielded this month. The domestic operating aluminium capacity stood at around 40.36 million mt as of November 11. With the production being curtailed in Henan province and other regions, the growth of domestic operating aluminium capacity will be limited in November. Two aluminium smelters in Africa announced production cuts last week due to force majeure, involving 490,000 mt of capacity. The operating rates in the domestic aluminium extrusion sector picked up last week mainly because the extruders in Shandong province resumed their production after the pandemic lockdown was lifted. The operating rates of construction extruders may continue to decline towards the end of the year, while those of industrial extruders are expected to remain stable. Production in other downstream processing sectors was largely stable. The operating rates of primary aluminium alloy, aluminium plate/sheet, strip and foil enterprises failed to rise under the influence of the off-season and renewed pandemic. On the whole, while the pandemic will continue to disturb downstream production in the short term, the domestic consumption is expected to improve as China has adopted more scientific and targeted pandemic prevention and control measures.   

To sum up, expectations for slower US interest rate hike and China’s adjustment of pandemic prevention and control measures have boosted market confidence. The domestic aluminium fundamentals are relatively positive amid falling social inventory and expectations for downstream demand to improve. High cost will underpin aluminium prices. The overseas aluminium supply was constantly disturbed. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,200-19,300 yuan/mt and $2,200-2,500/mt respectively this week.