SHFE aluminium to stabilise, eyes on whether social inventory will fall

Macro: In the week ending October 19, Chinese economy showed signs of gradual recovery with the release of Q1-Q3 GDP and other economic data. Meanwhile, the U.S. Federal Reserve hinted at a stable economic outlook with potential inflation slowdown. Several Fed officials supported a pause in rate hikes, reducing market expectations for another short-term hike. Despite these developments, uncertainties around Fed's interest rate decisions created volatility. These macroeconomic conditions had a minimal impact on aluminium prices.

Fundamentals: In the week ending October 19, China's aluminium supply remained steady, with a new 200,000-mt project in Inner Mongolia expected to start soon. Environmental regulations in Shandong mainly impacted the alumina and carbon sectors, not aluminium. In Q4, a slight increase in aluminium production is anticipated due to the new capacity in Inner Mongolia. Despite energy consumption concerns in Qinghai, local aluminium smelters meet the standards, and no production cuts are expected. The total domestic aluminium operating capacity is stable at 42.94 million mt. Demand: the weekly performance of downstream industries was average. Negative market sentiment due to real estate issues caused caution in the construction extrusion industry. Industrial extrusion saw a decline in operating rates due to reduced production at some modules factories and lack of a strong demand in October. Automotive extrusion orders shifted to larger companies due to quality requirements. The aluminium plates, sheets, strips, and foils market remained steady, with medium and large enterprises maintaining production till November. Downstream restocking allowed aluminium ingot social inventory to fall 10,000 mt on October 19 compared to October 16, though inventory levels in Wuxi and Foshan remained high.