Price Forecast: Driven by bullish macro front and positive fundamentals, aluminum prices to rise further in May

Fundamentally, domestic aluminum operating capacity grew by about 500,000 mt MoM, mainly due to production resumption in Yunnan. Around 660,000 mt of aluminium capacity in Yunnan has been resumed, and the remaining capacity of more than 600,000 mt are expected to be restarted and then reach full capacity in June. The domestic aluminum output increased both MoM and YoY, and at the end of the second quarter, the domestic aluminum operating capacity is expected to exceed 43 million mt. The domestic aluminum output is expected to increase by nearly 5% YoY in May, with an average daily output of 117,400 mt. However, high share of aluminium liquid output and declining aluminum ingots somehow weakened the pressure on inventory. In addition, domestic aluminum import window closed, and the inflow of overseas aluminum ingots dropped significantly compared with 200,000 mt/month in the first quarter. The increase in Yunnan made up for the expected decline in imports. Although domestic aluminum ingot inventories dropped only slightly in April, the fact that the inventory was still lower than same period of previous years boosted aluminum prices. The domestic aluminum downstream sector improved in April. The orders of large and medium-sized enterprises of aluminum plate/sheet, strip and extrusion sectors have become saturated. The export orders of new energy vehicles, PV and aluminum semis showed an upward trend. However, aluminum prices continued to rise in April, somehow suppressing the willingness of downstream enterprises to place orders. The raw materials of some small enterprises were not into hedging business, resulting in losses in the delivery of previous orders and poor production willingness. It is expected that downstream operating rate will remain positive in peak season in May,

From a technical point of view, the most-traded SHFE aluminium contract may swing on a strong note or experience a slight correction before going up. 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; 2. SHFE aluminum prices will experience a slight correction before climbing; 3. Aluminium ingot stocks will decline; 4. Aluminium billet stocks will drop. In addition, the 10-day price peak of SMM spot buying intensity index occurred on May 6, 2024. It is expected that the average price of SMM A00 aluminum will increase with a probability of 60.27% in the next 15 days (trading days). The machine learning indicates that the most-traded SHFE aluminium contract will swing on a strong note or 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 [20,070, 21,320], and the extreme price range will be [19,810, 21,510]. The futures technical indicators suggest that the most-traded SHFE aluminium contract may move sideways or go up next month. Based on the weekly K-line, SMM observed a total of 43 technical indicators, of which 19 were neutral, 15 were bullish, and 9 were bearish. Most of the oscillating indicators and momentum indicators pointed to rangebound price movement, with bullish signals outnumbered bearish ones. In May, prices may move rangebound or go up. After combining machine learning and technical indicators, SMM predicts that the most-traded SHFE aluminium contract will swing on a strong note or go up after a slight correction. The most-traded SHFE aluminium contract may encounter resistance in the range of [21,300, 21,500] while finding support in the range of [19,800, 20,000].

Summary: In May 12 - June 10, the global manufacturing industry will continue to recover. The global PMI showed that in April, the cyclical sentiment in regions outside the US was positive and better than that of the US. The Fed's FOMC in May was dovish, and the possibility of further interest rate hikes was low. In addition, the US Fed also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1,. Given strong domestic macroeconomic recovery and supporting measures, China's economy will continue to recover. Fundamentally, domestic aluminum supply maintained a growth trend, but downstream demand is still positive. Driven by decline in aluminum social inventories, tight supply and demand and cost support, the fundamentals were positive. SMM predicts that driven by strong expectations for macroeconomic recovery and positive fundamentals, the most-traded SHFE aluminum will swing on a strong note and fluctuate at around 19,780-21,500 yuan/mt. We need to be alert to the bearish risks of delay in destocking and weaker-than-expected consumption.