SMM Review of Aluminium Market during CNY Holiday and Post-Holiday Outlook

SHANGHAI, Jan 28 (SMM) -

Review: The most-traded SHFE 2303 aluminium contract hit 19,500 yuan/mt on January 20, a new high in more than half a year. The SHFE was closed from January 21 to January 27 for the Chinese New Year (CNY). LME aluminium opened at $2,593/mt on Monday January 23, with its weekly high and low at $2,664/mt and $2,593/mt respectively before trading at $2,627.5/mt on Friday, an increase of $37.5/mt or 1.45%.

From a macro point of view, during the CNY holiday, the US Department of Labour announced that the number of initial jobless claims for the week ending January 21 was 186,000, which was lower than the previous reading. The preliminary reading of actual annualised GDP in the US rose 2.9% on a quarterly basis in the fourth quarter of 2022, beating forecast of 2.6%. The improvement of various economic indicators indicates that the US economy is still resilient at present, and there is no risk of recession in the short term. Next week, market players will need to pay attention to the Fed’s interest rate decision. According to market news, the Fed may raise interest rates by 25 basis points at the FOMC meeting next Thursday, and the rate hike may slow down. With the lifting of China’s pandemic controls, passenger traffic during the 2023 CNY holiday rebounded significantly. In the first 26 days of January 26, a total of 43.56 million passengers travelled by railways, highways, waterways, and air across the country, an increase of 85.9% YoY, but down 46.9% from the same period in 2019.

On fundamentals, aluminium smelters maintained normal production during the holiday, while those in south-west China were still subject o power rationing.  A small amount of new production capacity in Inner Mongolia and Gansu was released, while the resumption of production capacity in Guangxi and Sichuan was limited. The domestic operating aluminium capacity was around 40.26 million mt as of January 28, a decrease of 170,000 mt from the end of December 2022, but 1.87 million mt higher than that at the end of January 2022. Because of concentrated arrivals during the holiday break, aluminium ingot inventory in China’s eight major markets totalled 929,000 mt as of January 28, an increase of 185,000 mt from the pre-holiday level. Gongyi, Wuxi and Nanhai contributed most of the growth. This figure far outpaced the inventory accumulation of 140,000 mt during the 2022 CNY holiday. In terms of consumption, large downstream enterprises maintained normal production during the holiday, while small and medium-sized ones were basically closed due to poor orders and workers returning home for CNY celebrations. Most downstream enterprises will begin to resume production around January 28-31. Transactions in the spot market will pick up next week, but the social inventory is still at risk of growing further due to increased production of ingots during the holiday and higher operating capacity than in the same period last year.   

In the short term, limited supply growth and optimism over demand recovery may buoy up aluminium prices. Potential risks to watch: Overseas interest rate hike; domestic consumption may fall short of expectations