Macro Uncertainty Increases, Aluminum Prices Pull Back and Consolidate at High Levels [SMM Aluminum Morning Brief]

SMM Sep. 19 Aluminum Morning Brief:

Futures side, in the previous trading day's night session, the most-traded SHFE aluminum 2511 contract opened at 20,860 yuan/mt, with the highest price at 20,860 yuan/mt and the lowest at 20,780 yuan/mt, closing at 20,800 yuan/mt, up 15 yuan/mt or 0.07% from the previous close. Trading volume was 43,500 lots and open interest was 248,000 lots. In the previous trading day, LME aluminum opened at $2,681/mt, with the highest price at $2,705/mt and the lowest at $2,666.5/mt, closing at $2,705/mt.

On the macro front, the US Fed announced a 25-basis-point interest rate cut on Wednesday, lowering the target range for the federal funds rate to 4%-4.25%. This marks the Fed's first rate cut since December last year, signaling the restart of its easing cycle. The market widely expects policymakers to cut rates by 25 basis points at each of the two remaining meetings this year. Fed Chairman Powell stated that the latest rate decision reflects a shift in risk balance, with recent data showing "a significant slowdown in job growth and other signs of a softening labour market." (Bearish★) Following Wednesday's rate cut, the Fed is expected to cut rates by another 25 basis points in October and December this year, extending its easing cycle. The bank indicated that the Fed's dot plot points to a steady pace of easing, underscoring policymakers' belief that inflation is on a downward trend and economic growth risks are rising. (Bearish★)

Fundamentals side, the aluminum market's supply side is seeing a slight increase in production driven by the gradual release of replacement capacity. Consumption side is recovering overall, with the automotive industry maintaining stable growth, the power sector's consumption outlook improving, and the construction sector marginally recovering. Operating rates for processed products are stable to slightly higher. Against the backdrop of aluminum prices pulling back, processed product plants are showing stockpiling demand for the dual festivals, and the pace of social inventory buildup has slowed significantly, easing inventory pressure compared to earlier periods.

Overall, supply-side increments in the aluminum market are limited. Against the backdrop of the peak season, the demand recovery trend continues, expectations for an inventory turning point are strengthening, and coupled with support from stockpiling demand, downside support for aluminum prices has increased. From a macro perspective, the US Fed cut rates by 25 basis points as expected, but Powell's remarks have increased subsequent market uncertainty. SMM expects aluminum prices to mainly consolidate at high levels after a pullback in the short term.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make decisions cautiously and not use this to replace independent judgment. Any decisions made by clients are unrelated to SMM.]