Seasonal inventory build-up to prevent aluminium prices from rising

The macro front was intertwined with bullish and bearish factors. The LPR with a maturity of more than 5 years was cut by 25 basis points, and mortgage rates fell to historic low. National Financial Regulatory Administration said that it actively introduced policies to boost confidence and expectations, and five state-owned Chinese banks have been matched with more than 8,000 residential projects for development loans under the "whitelist" mechanism aimed at injecting liquidity into the crisis-hit sector. Overseas, as the Fed CPI data exceeded expectations, and many Fed officials pointed out the risk of cutting interest rates too fast, rate cut expectations fell again. The White House was expected to announce a "major sanctions package" against Russia on Feb 23, and the European Union will extend sanctions against Russia for a year, supporting overseas prices.

Fundamentals: Domestic aluminium smelters maintained stable operation after CNY. Domestic aluminium ingot operating capacity maintained at 42 million mt/day. During CNY, the share of aluminium liquid output fell compared with January. The transportation of aluminium ingots and aluminium billets was affected due to snowfall, pushing up the inventory at smelters. It was reported that the production transformation and upgrading of Guizhou Anshun Aluminium went smoothly. The enterprise has 130,000 mt of existing aluminium production capacity, and is expected to complete production resumption in the first half of this year. Cost: The raw materials and auxiliary materials prices for domestic aluminium smelters were stable after CNY, and cost of domestic aluminium fluctuated within a narrow range. As of Feb 22, the immediate cost was flat at 16,884 yuan/mt. Overseas: US President Joe Biden said on Feb 20 that the US planned to announce a "significant" package of sanctions against Russia on Feb 23, triggering market concerns about the supply of Russian aluminium and alumina. In recent years, overseas disputes over Russian aluminium metal continued, and more Russian aluminium metal flowed into Asian markets. In 2023, the total domestic imports of Russian aluminium exceeded 1.17 million mt, accounting for more than 76% of the total. If the US made further sanctions or restrictions on Russian aluminum metal, it may tighten the aluminium supply in overseas markets and increase aluminum supply in Asian markets. Demand: Domestic aluminium downstream processing enterprises gradually resumed production after CNY. Most enterprises in construction aluminium extrusion sector was expected to resume production after Feb 24. Industrial aluminium extrusion and aluminium plates/sheet, strip and foil sector saw moderate production resumption, but downstream resumption may be delayed due to colder weather and snowfalls. Domestic aluminium social inventory has entered a seasonal inventory accumulation cycle, but the total inventory growth is lower than the level of the same period in previous years. We need to be wary that high aluminium billets inventory may continue to suppress aluminium billets processing fees.

From a technical perspective, the model predicts that the price range of the closing price of most-traded SHFE aluminium contract will be [18,695, 19,610], the price center will be 19,100, the unit is yuan/mt, the extreme price range will be [18,170, 20,050], the normal price range will be [18,520, 19,760], and the conservative price range will be [18,870, 19,460]. The prices are expected to move sideways or go down. The support range will be [18,520, 18,870], and the resistance range will be [19,460, 19,760]. The model predicts that the range of the average price of SMM A00 aluminium will be [18,370, 19,205], with the price center of 18,810, and the unit is yuan/mt. The extreme price range will be [18,030, 19,750], the normal price range will be [18,260, 19,390], and the conservative price range will be [18,480, 19,020]. The prices are expected to move sideways or go down. The support range will be [18,260, 18,480], and the resistance range will be [19,020, 19,390].

Taken together, the Fed's interest rate cut expectations declined again, the US dollar index rebounded, and commodities were under pressure. The prospect for domestic economy remained optimistic, but demand recovery still depends on production resumption after CNY. In terms of fundamentals, the domestic aluminium market has entered the seasonal accumulation cycle after CNY holiday, and the supply is stable in the short term, while the demand still waited for recovery. There are supply-side disturbances overseas. From a global perspective, the supply growth of aluminium supply picked up slightly in 2024, and demand is also expected to increase, driven by photovoltaic and new energy. The global aluminium supply and demand is unlikely to see oversupply, underpinning aluminium prices. In the short term, a new round of sanctions in Europe and the US will give limited boost to aluminum prices. Domestic seasonal inventory growth continues and the market is waiting for more drivers. SHFE aluminum is expected to fluctuate between 18,260-19,390 yuan/mt this week, and LME aluminum may fluctuate between $2,150-2,320/mt. We will continue to pay attention to domestic inventory changes as well as domestic and overseas monetary policies.