Optimism over Demand Recovery to Sustain Further Rise in SHFE Aluminium after the CNY Holiday

SHANGHAI, Jan 20 (SMM) - The most-traded SHFE 2302 aluminium contract opened at 18,495 yuan/mt this Monday, with its weekly low and high at 18,395 yuan/mt and 19,160 yuan/mt respectively before closing at 19,025 yuan/mt as of CST 15:00 on Thursday, up 80 yuan/mt or 0.42% on the week. LME aluminium opened at $2,600/mt on Monday, with its weekly low and high at $2,575/mt and $2,679.5/mt respectively before trading at $2,613/mt as of CST 15 on Thursday, up $13/mt or 0.5% on the week.

The US dollar index hovered at a low level this week, shoring up the commodity market. The Chinese government voiced greater support for small and micro enterprises and the real estate industry. The Chinese economy will see a significant improvement this year, and its growth rate will most likely return to a normal level, Chinese Vice Premier Liu He said at the World Economic Forum Annual Meeting 2023. There were growing expectations for China’s economic recovery.

In terms of fundamentals, a large number of aluminium processing enterprises were shut down early for the Chinese New Year (CNY) due to insufficient orders. The power rationing-induced aluminium capacity cuts in Guizhou have exceeded 600,000 mt so far. Power shortages in south-west China are threatening to reduce the domestic operating aluminium capacity further in January. However, the overall aluminium market remained in a surplus. The domestic aluminium ingot social inventory totalled 744,000 mt as of January 19, up 102,000 mt from a week ago. Despite poor fundamentals, optimism about the post-holiday consumption buoyed aluminium prices.

To sum up, the overseas inflation has improved recently, while the peak of Covid infections has passed across many parts of China. Optimism over post-CNY demand recovery will sustain further rise in aluminium prices. LME aluminium is likely to move between $2,380-2,600/mt next week, and the most-traded SHFE aluminium contract between 18,000-19,000 yuan/mt after the CNY holiday.