SHANGHAI, Jan 16 (SMM) - The most-traded SHFE 2302 aluminium contract opened at 17,825 yuan/mt last Monday, with its weekly low and high at 17,775 yuan/mt and 18,545 yuan/mt respectively before closing at 18,515 yuan/mt as of CST 15:00 on Friday, up 665 yuan/mt or 3.73% on the week. LME aluminium opened at $2,391/mt last Monday, with its weekly low and high at $2,313/mt and $2,445.5/mt respectively before trading at $2,564.5/mt as of CST 15:00 on Friday, up $173.5/mt or 6.77% on the week.

On the macro front, the US CPI rose 6.5% year-on-year (YoY) in December 2022, in line with market expectations, and the increase was the smallest since October 2021. The US CPI slipped 0.1% month-on-month (MoM) in December 2022, which was the first MoM decline in two and a half years. The US core CPI rose 5.7% year-on-year in December 2022, the lowest level since December 2021. At the same time, the US initial jobless claims recorded 205,000 in the week ending January 7, lower than the expected 215,000, pointing to still strong labour market. This eased fears of aggressive interest rate hike by the US Federal Reserve. In December 2022, the financing scale of real estate companies in China exceeded 100 billion yuan. The China Banking and Insurance Regulatory Commission once again stated that it will promote the healthy development of real estate and finance sectors. Many local governments in China set their GDP growth targets for 2023 at above 5.5%, boosting market confidence.

In terms of fundamentals, the domestic operating aluminium capacity continued to decline. The power rationing-associated aluminium capacity cuts in Guizhou have amounted to 700,000 mt so far, with no word as for when the curtailed capacity could be resumed. Some smelters in Guangxi and Sichuan raised their production slightly. After signing long-term nuclear power contracts at lower prices, French aluminium smelter Aluminium Dunkerque has begun to restart 70,000 mt of idled capacity and plans to achieve full production by around May. The operating rates of domestic aluminium processing enterprises continued to decline last week. The aluminium extrusion sector led the decline as most aluminium extruders, especially small and medium-sized ones, have already been closed for the Chinese New Year (CNY), while the rest stocked up on limited raw materials due to insufficient orders and market liquidity crunch. The operating rates of primary aluminium alloy, aluminium plate/sheet, strip, as well as aluminium wire and cable sectors, saw a slight decline as most producers reduced their production due to approaching CNY holiday. The operating rates of aluminium foil and secondary aluminium alloy sectors held stable. Large aluminium foil producers will maintain normal production during the CNY holiday on the back of sufficient orders. The downstream operating rates are unlikely to pick up before the CNY holiday. The social inventories of aluminium ingots maintained an increase last week, and are expected to climb further before the CNY holiday.

To sum up, cooling US inflation triggered expectations for a slowdown in interest rate hikes. The domestic demand stagnated ahead of the CNY holiday, but market participants are generally optimistic over demand recovery after the holiday. The domestic aluminium production is likely to decline in January, dragged down by power rationing in south-west China. Rising social inventories in the off-season will prevent aluminium prices from going up, while positive macro front and high energy prices may provide certain support. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,000-19,000 yuan/mt and $2,380-2,600/mt respectively this week.