Domestic policy boosts aluminum market, focus on changes in downstream consumption during and after the holiday

This week, favourable macro factors were released intensively. Following the US Fed's rate cut, several small and medium-sized banks in China lowered deposit rates. Subsequently, the People's Bank of China announced RRR cuts, interest rate cuts, and reductions in mortgage rates on existing home loans, sparking market optimism. On Wednesday, the State Council proposed prioritizing high-quality full employment as a goal for economic and social development, incorporating it into national economic and social development plans. Overseas, several US Fed officials expressed support for further rate cuts, coupled with the escalation of the situation in Lebanon. US President Biden stated that a full-scale war could erupt in the Middle East. Multiple favourable factors resonated, providing upward momentum for aluminum prices.
Fundamentals: This week, domestic aluminum operating capacity mainly continued to grow. Following the resumption of production at Anshun Aluminum last week, an aluminum enterprise in Sichuan also planned to resume production this week. The total scale of aluminum resumption for these two enterprises involved about 255,000 mt, expected to reach full production by the end of November. During the week, the MIIT released guidelines for upgrading industrial equipment, mentioning the goal of phasing out electrolytic cells below 200KA by 2027. According to SMM data, domestic aluminum capacity for electrolytic cells of 200KA and below is about 1.07 million mt, mostly of the 200KA type. Enterprises can meet future policy changes through capacity transfer and production technology improvements, with minimal impact on domestic aluminum production. Regarding imported aluminum, customs data showed that in August, the net import volume of domestic aluminum reached 148,000 mt, up 33.7% MoM and 16.1% YoY. From January to August, the total net import volume of primary aluminum was about 1.45 million mt, up 123.3% YoY. In September, import losses expanded, and the net import volume is expected to fall back to around 120,000 mt. Demand side: This week, domestic downstream aluminum operations remained stable and positive. According to an SMM survey, the production schedule for mainstream industrial materials in China extends to the end of October, and orders for the plate/sheet, strip, and foil segment have also improved. Additionally, with the imminent US 301 tariffs, continuous attention is needed on changes in aluminum semis export orders. Pre-holiday downstream stocking driven by rigid demand led to a good destocking of domestic aluminum social inventory during the week.
Overall, on the macro front, since the US Fed's rate cut, the domestic central bank announced four major monetary policies, including rate cuts, RRR cuts, and reductions in mortgage rates on existing home loans, indicating the government's recognition of the urgency to eliminate deflation risks and support economic growth. Favourable macro factors resonated internally and externally. On the fundamentals, the domestic aluminum market supply side slightly increased. With the approaching National Day holiday, considering the downstream production holiday arrangements, there is an expectation of a temporary weakening in domestic downstream consumption. After the holiday, domestic aluminum social inventory may slightly accumulate, but from a medium and long-term production schedule perspective, October consumption remains in the industry peak season, with demand mainly stable. Overall, in the short term, with a favourable macro atmosphere and stable fundamentals, the aluminum market is expected to hover at highs next week. SMM forecasts that the most-traded SHFE aluminum contract will fluctuate between 19,620-20,880 yuan/mt next week, while during the National Day holiday, the overseas market will operate normally, with LME 3M aluminum expected to range between $2,480-2,650/mt. Future attention should be paid to the operation of overseas markets during the holiday and the recovery of downstream consumption after the holiday.