Aluminium Prices Likely to Move in A Wide Range with Supply Inconsistency and Seasonal Low in the Consumer Market

SHANGHAI, Aug 12 (SMM) - During the session from July 12 to August 10, SHFE aluminium showed a V-shaped trend on the whole. The wresting between longs and shorts was intensive in light of sluggish consumption and unexpected production cuts due to an accident. The most-traded SHFE aluminium cost hit the low and high at 17,000 yuan/mt and 18,820 yuan/mt respectively during this session. The contract closed at 18,685 yuan/mt as of August 10, up 775 yuan/mt or 4.33% compared with the last session. LME 3M moved between $2,310-2,510/mt during the same session, and stood at $2,473.5/mt as of 15:00 on August 10 Beijing time, marking a monthly growth of 2.72%.
On the macro front, the Fed raised its benchmark interest rate by 75 basis points to a range of 2.25% to 2.50% in the early morning of July 28, in line with market expectations. The intensifying European energy crisis also injected constant momentum to LME aluminium. Looking back to China, the official manufacturing PMI in July was reported at 49, down 1.2 points from the previous month. In addition, the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Ecology and Environment jointly issued the action plan for carbon peaking in the industrial sector.
On the fundamentals, the operating aluminium capacity managed growth in July. However, the greatly falling aluminium prices weighed on the production recovery rhythm in Guangxi province amid contracting profit margins, and the production in Sichuan province was also restricted by power rationing, slowing down the operating aluminium capacity increment. Domestic aluminium output was about 3.5 million mt in July, a year-on-year increase of 6.74%. The output totalled 23.059 million mt in the first seven months in 2022, a year-on-year growth of 1.4%. Entering August, domestic operating aluminium capacity is estimated at 41.22 mt as an accident occurred to an aluminium smelter in Sichuan cut the operating capacity by 190,000 mt. Therefore, it is expected domestic aluminium output will remain flat MoM in August. The pressure on the domestic supply side will alleviate in the short term. On the demand side, domestic downstream consumption was in the off-season throughout July, and the operating rates across the downstream all declined. And with the lasting sluggishness in the real estate and other terminal sectors, the follow-up domestic aluminium demand lacks strong driving forces. The additional demand in photovoltaic and new energy has yet to be verified. As such, the spot discounts expanded as aluminium ingot and billet social inventory was unable to see a de-stocking. The export volume of unwrought aluminium and aluminium products in July was 652,200 mt, and the cumulative exports from January to July stood at 4,160,600 mt, a cumulative increase of 34.9% year-on-year. The shortage of primary aluminium in the European market has made it more reliant on domestic aluminium exports, underpinning the export market.
To sum up, in August (August 11 - September 9), the increment of operating aluminium capacity will slow down amid unexpected production cuts and delayed production resumption in places like Guangxi due to poor profits, and the August aluminium output is expected to remain flat MoM. In the overseas market, the operating capacity in the Europe will be constantly contained by the energy crisis. And aluminium production cuts can be expected both in China and abroad, easing the supply pressure in the near term. On the consumption side, it is difficult for the domestic downstream operating rates to pick up significantly in August, while the contracting overseas demand for aluminium semis is expected to stall. All in all, aluminium inventory is expected to stay on the upward trend. To sum up, the domestic aluminium sector will be intertwined with bullish and bearish factors in August, and the SHFE contract is expected to experience violent and wide fluctuations amid the long-short game on the backdrop of supply-side disturbance and poor consumption. SHFE aluminium prices are expected to hover between 17,800-19,300 yuan/mt in the following week.