LME aluminum rose by 3.05% on Jan 23 and continued to rise yesterday, rising by 4.35% as of 17:49. Driven by the fall in the US dollar, positive macroeconomics and fundamentals, most-traded SHFE aluminum was up by 2.04%, changing its recent weak performance, with a smaller increase than LME aluminum.
Spot market
Since January, the average spot price of SMM A00 aluminum has swung on a soft note. It was reported at 18,980 yuan/mt on Jan 24, up by 1.23%. According to SMM analysis, recently, the spot import window for aluminum opened, and some imported supplies may enter the domestic market. At the end of the month, the aluminum market may enter the traditional inventory accumulation cycle, which may put some pressure on premiums and discounts. However, in the short term, the current spot inventory continues to be low, supporting aluminum spot premiums.
Macroeconomics
The China Securities Regulatory Commission will enrich policy tools to deal with market fluctuations, conduct risk hedging in a timely manner, and maintain the bottom line of risks. It will strengthen cross-departmental collaboration, promote relevant parties to maintain the continuity and stability of macro policies and industry policies, prevent the introduction of policy measures that are not conducive to capital market expectations, and stabilize market expectations. According to news, the EU’s new package of sanctions mainly target Russian aluminum products. The EU began discussing a new round of sanctions against Russia and will adopt them on February 24.
To sum up, the weakening of the US dollar, favorable domestic policies and other macro factors, coupled with the EU sanctions on Russian aluminium, boosting SHFE aluminium futures prices.
The fundamentals
Supply: According to SMM data, total domestic aluminum production reached 41.51 million mt in 2023, up by 3.6% YoY, and the industry's average operating rate reached 92%. At the same time, total domestic net imports of primary aluminum in 2023 increased by 195% YoY to 1.39 million mt. With both domestic and overseas supplies to China increasing, total domestic consumption of primary aluminum in 2023 increased by 5.8% YoY to 42.9 million mt. .
Inventory: SMM data showed that the social inventory of aluminium ingots across China’s eight major markets was 440,000 mt, and the amount available for sale was 314,000 mt, down by 1,000 mt WoW. The inventroy has decreased for two weeks and is still the lowest compared with the same period of past seven years. The inventory difference with the same period last year has widened to 304,000 mt. In terms of outflows, according to SMM statistics, the outflow of aluminum ingots last week was 117,300 mt, and the weekly outflow increased by 2,400 mt WoW. The relatively strong outflow performance in the past half month has continued. At present, the overall domestic spot circulation continues to tighten, and the inventory will be mild before the CNY holiday, which supports the premiums in the three major places. LME aluminum inventories continued to decline since January 9, and fell by 2,500 mt until January 23rd, which were mainly driven by destocking in warehouses in Gwangyang and Singapore.
SMM outlook
Overall, the decline in the US dollar, favorable domestic macroeconomic, and the EU's official announcement of sanctions against Russian aluminium boosted domestic and overseas aluminum prices. As the Chinese New Year approaches, downstream industries may have CNY holiday at the end of the month, and the operating rate is expected to weaken. However, the continued stockpiling before the CNY holiday has driven domestic aluminum inventories to remain low. The short-term aluminum prices may be supported by favorable macroeconomics and fundamentals.
