SMM Aluminium Price Forecast from Fundamentals and Macro Perspective

SHANGHAI, Apr 3 (SMM) – On the macro front, members of the European Central Bank (ECB)’s Governing Council and the Governor of the Bank of England (BoE) expressed that interest rates might be raised further. US President Biden said that although his administration has done everything possible to resolve the banking crisis, the crisis is “not over yet”, intensifying market expectations for the Fed to raise interest rates in May and keeping risk appetite in check. In China, the Ministry of Industry and Information Technology (MIIT) and the National Development and Reform Commission (NDRC) voiced guidance and support for private enterprises to promote the development of the private economy. In March, the domestic manufacturing PMI slipped 0.7 point MoM to 51.9, but remained in the expansion territory. And the reading was the second highest in the past two years, pointing to strong recovery of the Chinese economy.

In terms of fundamentals, the domestic aluminium production maintained a small increase last week, mainly contributed by smelters in Sichuan and Guizhou. The domestic aluminium output is estimated to rise over 2% YoY to 3.39 million mt in March. There were rumours that smelters in Yunnan would cut output, but SMM’s survey showed that local smelters have not yet received such notice. Most smelters in south-west and north-west China trimmed aluminium ingot output in March, hence market supply is unlikely to grow significantly in the future. In particular, supply has tightened in east China.  Downstream operating rates picked up slightly last week, but remained below levels in the same period last year. Thanks to robust orders from photovoltaic sector, the operating rates of aluminium extruders climbed for five consecutive weeks. Demand for aluminium plate/sheet and strip continued to grow, and downstream customers became more active in picking up goods after aluminium prices rebounded. Downstream purchases of secondary and primary alloys increased slightly, but this did not drive the operating rates of alloy factories to rise. As rising aluminium prices slightly cooled down downstream buying enthusiasm, aluminium ingot destocking slowed down.

To sum up, although the US banking crisis has somehow relented, expectations for interest rate hikes will suppress risk appetite in the medium and long run. The domestic aluminium supply increased only slightly, and insufficient hydropower supply in south-west China due to the dry season could threaten local production. With improving downstream operating rates and falling share of aluminium ingot output, the aluminium ingot social inventory is on track to extend declines. In April, prebaked anode prices are expected to plunge 520 yuan/mt, which will significantly reduce smelters’ costs and improve their profitability. With social stocks falling steadily in the peak season, aluminium prices will find solid support in the short term. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,300-19,000 yuan/mt and $2,300-2,450/mt respectively this week. Factors to watch: Changes in macro sentiment and domestic inventory.