The macro front was positive, boosting aluminum prices. The National Development and Reform Commission and the State Council successively expressed their intention to support for the real economy. The governor of the central bank said that there will still be ample policy space and a rich reserve of tools. China's manufacturing PMI rose above 50% in March. Although the Fed's attitude towards interest rate cuts swung, the increasingly tense situation between Russia and Ukraine lifted the commodity market.
In terms of fundamentals, the domestic aluminum operating capacity was recovering slowly, but Yunnan's electricity supply still somehow limits the supply growth rate, and a large-scale rapid release of new production capacity are unlikely to see. In addition, a smelter in Inner Mongolia shut down after power outage in March, and 40,000 mt of production capacity has not yet recovered. A smelter in Sichuan stopped production for maintenance at the end of the month until September, affecting more than 60,000 mt of operating capacity. SMM data showed that the existing aluminium capacity was about 45.19 million mt, the operating aluminium capacity was around 42.1 million mt, and China's aluminium output was 3.555 million mt in March (31 days), up 4.19% YoY. In April, some production capacity in Yunnan are still resuming. It is estimated that by the end of April, the domestic aluminum operating capacity may recover to around 42.35 million mt, a high level in the same period of previous years. In the second quarter, the MoM growth rate of domestic supply slowed down, and the import window was closed, which may affect market supply. The growth rate of apparent consumption narrowed, lifting the pressure from supply. The domestic social inventory of aluminum ingots was about 863,000 mt as of April 8, 2024, which was still at a relatively low level in the same period in history. At the end of March, the inventory showed signs of declining. Although the inventory grew slightly after the Qingming Festival, the total inventory was still at a low level in the same period in history. The strong growth in the first quarter and the low inventory strengthened the market confidence in the peak season in the second quarter. SMM statistics showed that the comprehensive PMI index of the domestic aluminum processing industry in March 2024 was 68.8%, returning to the expansion territory. In March, the production capacity of domestic aluminum processing enterprises returned to normal, among which the recovery of construction aluminum extrusion exceeded expectations. The operating rate was 50.01%, up 20.36% MoM, mainly driven by the increase in orders brought about by the urban village renovation plans; the operating rate of industrial aluminum extrusion enterprises was 62.24%, up 21.2% MoM. Favourable policies such as "trade-in" and "car loan policy" have been introduced in China, boosting the orders in automotive aluminium extrusion segment in April. With the arrival of the peak season, demand for aluminum plate/sheet, strips and foils recovered and the operating rate rose. In April, aluminum processing sectors were still expected to rise amid the downstream peak season. .
From a technical point of view, the most-traded SHFE aluminium contract may experience a slight correction before climbing again. Monthly forecasts based on the time series model are as below: 1. The average price of SMM A00 aluminum may swing on a strong note after a small correction; 2. SHFE aluminum prices will experience a slight correction before climbing; 3. Aluminium ingot stocks will decline; 4. Aluminium billet stocks will drop. The machine learning indicates that the most-traded SHFE aluminium contract will go up after a slight correction. The model (including linear and non-linear) predicts that the price range of the most-traded SHFE aluminium contract will be [19,820, 21,510], and the extreme price range will be [19,680, 21,950]. In terms of futures technical indicators, the most-traded SHFE aluminium contract will swing on a strong note. Based on the weekly K-line, SMM observed a total of 43 technical indicators, of which 6 were neutral, 26 were bullish, and 11 were bearish. Bullish signals outnumbered bearish ones. However, some bullish signals show that the market is in overbought territory, so we need to be alert to the risk of a correction. In April, prices may swing on a strong note or go up. After combining machine learning and technical indicators, SMM predicts that the most-traded SHFE aluminium contract may experience a slight correction before climbing again. The most-traded SHFE aluminium contract may encounter resistance in the range of [21,500, 22,000] while finding support in the range of [19,700, 19,800].
Summary: In April 11-May 10, the international situation between Russia and Ukraine intensified, pushing up the gold and crude oil prices, and lifting the commodities market. The Fed's attitude towards interest rate cuts swung, the data released by the US in March exceeded expectations, and the market's expectations for the Fed's interest rate cuts pulled back. However, the market focused more on the recovery of global manufacturing, and the manufacturing PMI of China and the US entered the expansion range. The market expects a new round of restocking. The expectation of economic recovery temporarily diluted the hawkish signals of the Fed. Favourable policies such as "trade in" and "car loan policy" have been introduced in China, and the macro atmosphere is bullish. Fundamentally, although domestic aluminum inventory performance fluctuated in April, it was still at a low level, and the impact of imported supplies on the spot market significantly weakened. In addition, Yunnan's electricity supply still somehow limits the growth rate of domestic supply. On the demand, aluminum processing sectors were still expected to rise amid the downstream peak season. SMM predicts that (April 11-May 10), driven by the strong expectations for macroeconomic recovery and the positive fundamentals, the most-traded SHFE aluminum will swing on a strong note and fluctuate at around 19,700-21,500 yuan/mt. We need to be alert to the bearish risks of delay in the destocking and weaker-than-expected consumption.
