SMM December 4 News:
From a macro perspective, the favorable atmosphere was relatively strong, providing momentum for aluminum prices to hold up well recently. Domestically, data released by the National Bureau of Statistics (NBS) on November 30 showed China's manufacturing PMI came in at 49.2%, up 0.2 percentage points MoM, indicating an improvement in the prosperity level of the nonferrous sector. In November, the People's Bank of China (PBOC) conducted a net injection of 50 billion yuan through open market government bond transactions. Overseas, the US Fed released the minutes of its November meeting in early December, with discussions focusing on balancing labor market risks and inflation. According to CME data, market expectations for a 25-basis-point interest rate cut in December rose to 84.7%. The increased probability of a rate cut boosted nonferrous metals.
On the fundamentals side, some new domestic aluminum projects began powering up and starting pots, leading to a slight increase in operating capacity and a small rise in weekly production. Overseas, new aluminum projects in Indonesia are ramping up production, with supply expected to increase MoM. Regarding the proportion of liquid aluminum, the SMM weekly proportion of liquid aluminum recorded 76.6% this week, down 0.26 percentage points WoW. As the off-season deepens, downstream operating rates showed a marginal decline, with aluminum billet enterprises expected to implement more production cuts in December. In terms of inventory, social inventories of aluminum ingots held steady at 596,000 mt this week. On one hand, seasonal transportation constraints in Xinjiang led to tight logistics capacity, causing some accumulation of ingots in the region. On the other hand, high absolute prices reduced downstream purchase willingness, likely affecting warehouse withdrawals.
Overall, the current macro front is filled with positive sentiment, and rising copper prices are driving aluminum prices higher. Fundamentally, the late timing of the Chinese New Year break this year means the weakening of aluminum demand in December is limited. The release of production from new aluminum capacity still requires some time, resulting in limited production growth in December. Coupled with expected seasonal transportation obstacles for aluminum ingots in Xinjiang, ingot inventory performance is expected to be relatively favorable, providing some fundamental support for rising aluminum prices. However, excessively high aluminum prices are likely to strongly suppress end-use consumption, and caution is needed against the risk of a pullback from high levels. SHFE aluminum is expected to trade in the range of 21,500-22,300 yuan/mt next week, while LME aluminum is forecast to trade between $2,850/mt and $2,950/mt.
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