On the macro front, Trump indicated at the beginning of the week that new tariffs would be imposed on many countries within the next two to three weeks. Atlanta Fed President Bostic recently stated that he expects the US economy to slow down this year but not fall into recession, reiterating his forecast of only one interest rate cut by the US Fed this year. The People's Bank of China (PBOC) lowered the one-year and five-year Loan Prime Rates (LPR) from 3.1% and 3.6% to 3% and 3.5%, respectively. Major state-owned banks, including the Bank of China, Industrial and Commercial Bank of China, and China Construction Bank, reduced RMB deposit rates on May 20, with both three-year and five-year rates cut by 25 basis points to 1.25% and 1.3%, respectively. PBOC Governor Pan Gongsheng chaired and spoke at a symposium on financial support for the real economy, emphasizing the implementation of a moderately loose monetary policy to meet the effective financing needs of the real economy and maintain reasonable growth in the total amount of finance. The General Office of the Shanghai Municipal People's Government issued the "Special Action Plan for Boosting Consumption in Shanghai" to promote automobile consumption, introduce subsidies for purchasing new digital products such as mobile phones, tablets, smartwatches (bands), and strengthen support for green home appliance, furniture, and home improvement consumption.
Fundamentals side, short-term supply-side changes have been relatively small. On the cost side, the specific impact of the Guinea incident on local bauxite supply remains to be assessed. In the short term, it may provide sentiment-based cost support for alumina, thereby driving up costs in the aluminum industry. The immediate fully loaded average cost of aluminum is approximately 16,945 yuan/mt, up 383 yuan/mt from last Thursday. On the demand side, the national operating rate for extrusions declined slightly by 0.5 percentage points WoW to 56% this week. Other downstream sectors, facing dual pressures from domestic seasonal weakness and trade uncertainties, have also struggled to find bright spots. In terms of inventory, despite a slight inventory buildup at the beginning of the week, outflows from warehouses exceeded expectations mid-week due to still relatively low in-transit cargo volumes over the past week, approaching the 550,000 mt mark. According to SMM statistics, as of May 22, the inventory of aluminum ingots in major domestic consumption areas stood at 557,000 mt, down 24,000 mt from last Thursday. SMM believes that with overall smooth domestic transportation in May, coupled with expectations of weakened outflows during the off-season, the circulation of aluminum ingots in major domestic consumption areas may gradually loosen from late May to early June. However, as in-transit cargo volumes of domestic aluminum ingots remain relatively low over the past two weeks, whether actual inventory performance will deviate from expectations may become a critical phase in the next two weeks.
Overall, on the macro front, no new substantive actions have been observed in the US-China tariff war this week. However, market concerns about rising US debt and a weakening economic outlook have intensified due to controversies surrounding US tax cuts and spending bills, as well as weak demand for the 20-year US Treasury bond auction, leading to heightened market risk aversion. The domestic market has signaled monetary policy easing, improving market expectations and stimulating economic growth, investment, and consumer demand. Fundamentals side, there have been relatively small changes in the short-term supply side. On the cost side, the specific impact of the Guinea incident on local bauxite supply remains to be assessed, and in the short term, it may provide sentiment-based cost support for alumina. On the demand side, there is dual pressure from domestic seasonal weakness and trade uncertainties, and in the short term, the operating rate of aluminum processing enterprises will be under pressure. Overall, the current low inventory provides support for aluminum prices. However, there have been no unexpected macroeconomic positives during the week to further drive aluminum prices higher, and the off-season pressure on the demand side limits upside room. Spot aluminum ingots in major consumption areas will face a situation of weak supply and demand, with aluminum prices expected to fluctuate rangebound in the short term. In the medium and long term, the direction of aluminum price movements remains to be further clarified, with attention to be paid to domestic and overseas demand performance, inventory trends at the end of May, and disruptions in bauxite supply. SMM expects the most-traded SHFE aluminum 2506 contract to trade between 19,800 and 20,500 yuan/mt next week, and LME aluminum to trade between $2,400 and $2,520/mt.
