SHANGHAI, Feb 6 (SMM) - The most-traded SHFE 2303 aluminium contract opened at 19,485 yuan/mt last Monday, with its weekly low and high at 18,750 yuan/mt and 19,485 yuan/mt respectively before closing at 19,095 yuan/mt as of CST 15:00 on Friday, down 370 yuan/mt or 1.9% from January 20, the last trading day before the Chinese New Year (CNY) holiday. LME aluminium opened at $2,631.5/mt last Monday, with its weekly low and high at $2,555/mt and $2,649.5/mt respectively before trading at $2,599/mt as of CST 15:00 on Friday, down $32.5/mt or 1.24% on the week.
On the macro front, the US interest rate hike slowed down further. The Federal Reserve Monetary Policy Committee (FOMC) announced a 25 basis point rate hike, raising the target range of the federal funds rate to 4.5-4.75%, in line with market expectations. China's manufacturing PMI, non-manufacturing business activity index and comprehensive PMI output index all returned to the expansion territory in January, which stood at 50.1, 54.4 and 52.9 respectively, an increase of 3.1, 12.8 and 10.3 points MoM. These figures indicate that China's economic activity has picked up significantly, and the economic recovery topped market expectations.
In terms of fundamentals, aluminium smelters in Guizhou province maintained output cuts, with a combined 770,000 mt of capacity being curtailed so far. However, as the power shortages in the province have shown signs of being alleviated, local smelters may be able to resume their production in the future. Rumours were flying that smelters in Yunnan province would be subject to a new round of power rationing this week to the tune of 1.5 million kilowatts, equivalent to a capacity loss of roughly 650,000 mt. Aluminium extruders and secondary aluminium alloy producers began to resume their production after the CNY holiday, but the recovery of the latter was relatively tepid owing to late return of employees and poor orders. Downstream production has basically fully recovered in east China. Aluminium plate/sheet, strip, foil and primary alloy sectors maintained stable operating rates as the production was not interrupted during the holiday. The accumulation of aluminium ingot social inventory during this year’s CNY holiday outpaced that in previous years due to higher operating aluminium capacity and enormous arrivals.
A series of economic stimulus policies in China and growing expectations for the US Fed to pause its interest rate hikes will create a bullish macro environment for commodities. The domestic aluminium production declined in January and may drop further amid fears of production cuts in Yunnan. Despite post-CNY downstream production recovery, the significant inventory accumulation will cap the upside room of aluminium prices, which are likely to move rangebound. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,500-19,500 yuan/mt and $2,500-2,680/mt respectively this week.
