Bullish Macro Front and Low Inventory to Sustain Further Rise in Short-Term Aluminium Prices

SHANGHAI, Nov 21 (SMM) - The most-traded SHFE 2212 aluminium contract opened at 18,920 yuan/mt last Monday, with its weekly low and high at 18,715 yuan/mt and 19,210 yuan/mt respectively before closing at 19,200 yuan/mt as of CST 15:00 on Friday, up 445 yuan/mt or 2.37% on the week. LME aluminium opened at $2,464/mt last Monday, with its weekly low and high at $2,361/mt and $2,478/mt respectively before trading at $2,400/mt as of CST 15:00 on Friday, up $39/mt or 1.65% on the week. 

On the macro front, the US CPI and PPI both fell in October, cooling down expectations for US interest rate hike. However, better-than-expected US retail sales indicated that inflation might make a comeback. The US retail sales rose 1.3% month-on-month (MoM) in October following a flat reading in September, beating the previous forecast for 1%. China optimised its pandemic prevention and control policies and unveiled measures to rescue the ailing property sector, boosting confidence in the aluminium market. The Ministry of Industry and Information Technology (MIIT) and two other government departments issued Carbon Peak Plan in Nonferrous Metals Industry, triggering concerns about the future supply of aluminium that is produced with thermal power. 

Fundamentals: Aba Aluminium restarted its potlines last week, but it may be difficult for the smelter to run at full capacity in the dry season. After the recent introduction of incentive policy, aluminium production resumptions in Guangxi province are expected to speed up. Henan province has reduced 80,000 mt of aluminium capacity, and the time for resumption has yet to be determined. On the whole, the domestic operating aluminium capacity was largely stable. The costs of aluminium smelters declined due to weaker coal and alumina prices. In the downstream sectors, some aluminium plate/sheet, strip and foil enterprises cut their production due to insufficient orders, while aluminium extrusion, wire and cable sectors also showed signs of off-season. The domestic aluminium ingot social inventory hit a new low due to limited arrivals from north-west China. Spot premiums in east China expanded amid tight supply.  

Bullish macro front and low inventory brought about by transportation obstacles will sustain further rise in aluminium prices in the short term. In the medium and long run, the inventory will accumulate as delayed shipments from north-west China will arrive in large quantities while the consumption will be unable to keep up. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,400-19,500 yuan/mt and $2,250-2,500/mt respectively this week. Market players should also be alert to risks of weaker downstream consumption at the current high aluminium prices and inventory accumulation.