Fundamentals: Supply-Demand Tightening and Domestic Aluminum Ingot Destocking Support Aluminum Prices to Hold Up Well [SMM Aluminum Price Weekly Review]

SMM October 23 News:

From a macro perspective, domestically, positive macro sentiment bolstered market confidence. Data released by the National Bureau of Statistics (NBS) on the 20th showed that, according to preliminary calculations, China's GDP for the first three quarters reached 101.5036 trillion yuan, up 5.2% YoY calculated at constant prices; for Q3, China's GDP was 35.45 trillion yuan, up 4.8% YoY calculated at constant prices. Overseas news caused frequent disturbances, with sentiment fluctuating and high uncertainty:

1. There were significant differences within the US Fed regarding the interest rate cut path. New Fed Governor Milan supported a 50-basis-point rate cut at the October policy meeting, while Fed Governor Waller advocated maintaining a cautious pace of 25-basis-point cuts per meeting to address a weak labour market. Fed Governor Moussalem stated that if employment faces more risks and inflation is controlled, he might support further rate cuts;

2. Early in the week, news emerged that He Lifeng held a video call with US Treasury Secretary Bessent and Trade Representative Greer, with both sides agreeing to hold a new round of China-US economic and trade consultations as soon as possible. However, subsequent reports quoted Trump saying China and the US would reach a trade agreement at the APEC summit, but the leaders might not meet. Market expectations are relatively optimistic, requiring continued attention to China-US trade consultation news;

3. Regarding the Russia-Ukraine conflict, early-week reports said Trump and Putin planned a meeting in Budapest, raising hopes for ending the conflict. Later in the week, Trump said he cancelled the Budapest meeting with Putin as it would not achieve any progress. Additionally, the EU approved the 19th round of sanctions against Russia, including a liquefied natural gas import ban; Bessent stated the US would "significantly increase" sanctions on Russia, followed by the US Treasury Department announcing sanctions against two major Russian oil companies.

Fundamentals side, domestic supply remained stable. Overseas, according to foreign media reports, Century Aluminum announced on October 21 that production was suspended at its Norðurál Grundartangi smelter in Iceland due to electrical equipment failure, forcing one of its two aluminum production lines to halt. There were no reports of casualties. Consequently, the smelter's production was temporarily reduced by two-thirds, while the other production line was unaffected. Cost side, the full cost for domestic aluminum was 16,080 yuan/mt, down 72 yuan/mt WoW, with the industry's average profit expanding to around 4,960 yuan/mt, up 162 yuan/mt WoW. Positive domestic macro sentiment, coupled with tightening supply-demand fundamentals and continued aluminum ingot destocking, supported aluminum prices to hold up well. As of Thursday, national aluminum ingot inventory recorded 618,000 mt, down 9,000 mt from the previous Thursday and down 7,000 mt from Monday. Aluminum prices traded between 20,830-21,180 yuan/mt during the week, but high absolute prices suppressed downstream purchasing enthusiasm, leading to weaker spot aluminum premiums/discounts.

Overall, from a macro perspective, overseas risks are significant, but no clear negative news has emerged yet; domestic macro sentiment remains positive. On the fundamentals side, overseas supply is expected to tighten, while domestic supply remains stable. Overall aluminum supply and demand are projected to tighten, coupled with continued destocking of domestic aluminum ingot inventory, supporting aluminum prices to hold up well. SHFE aluminum is expected to trade in the range of 20,800-21,300 yuan/mt next week, while LME aluminum is forecast to trade between $2,750-2,830/mt.

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