December's Aluminum Prices Are Still Supported By Low Inventories, Despite Cautious Macroeconomic Sentiment Subduing Bullish Activity

Macro: The period saw a robust macroeconomic environment, with diminished interest rate hike expectations in Europe and the U.S., instead hinting at potential cuts. October's U.S. CPI rose 3.2% YoY, below expectations. ECB President, Christine Lagarde, suggested a possible halt in rate increases to evaluate tightening policies' impact. Federal Reserve Governor Christopher Waller also hinted at potential rate cuts if inflation reduction progress continues. October's financial data, including social financing and RMB loans, show China's economy improving. Authorities like the People's Bank of China support funding for real estate firms. With Europe and America's interest rate hikes ending and China's economy recovering, the macro environment supports aluminum prices.
Fundamentals show Yunnan's November aluminum cuts hit 1.17 million mt annual capacity, as expected, reducing domestic operating capacity to 41.9 million mt. December's domestic operating capacity should stay stable, with only a new 120,000-mt increase expected in Baiyinhua. November saw a 4.6% YoY increase in domestic aluminum production, with a 3.6% rise expected in December, aiming for a 41.51 million mt total in 2023, up 3.6% YoY. October's primary aluminum net imports hit a record high of over 210,000 mt, with November's expected to drop to around 120,000 mt. Late November reopening of the import window could potentially boost imports in late December or January. Downstream, November's aluminum processing industry was sluggish; domestic demand for aluminum plate/sheet and strip and foil fell, but exports saw a slight uptick due to seasonal overseas stockpiling. The aluminum extrusion sector was weak overall, especially in PV extrusion, where new orders and operating rates dropped amid high inventory levels at module firms. The construction aluminum extrusion industry's off-season has sharply cut orders, especially for small and medium-sized enterprises, with some stopping production, briefly denting market confidence. In November, domestic aluminum inventories fell, and low month-end prices prompted downstream stock replenishment. A low ingot production ratio quickened inventory declines.
In summary: Entering December (Dec 12 - Jan 10), the U.S. is approaching the end of its rate-hiking cycle with expectations of rate cuts in 2024, barring significant inflation surprises. Key focus remains on upcoming U.S. CPI, PPI data, and December's Federal Reserve and ECB rate decisions and economic forecasts. China's November Manufacturing PMI stayed under 50%. December's Central Political Bureau meeting outlined a proactive 2024 policy, emphasizing progress with stability and ongoing proactive fiscal and prudent monetary policies. Fundamentally, China's aluminum supply is stable, with Yunnan's further cuts undecided, and short-term supply likely to continue its YoY growth. Downstream demand's seasonal dip, low ingot casting ratio, and low-price stockpiling are depleting aluminum ingot inventories. Year-end liquidity drop keeps SHFE aluminum interest low. With the off-season and expected inventory build-up, bullish market entry is limited, capping SHFE price rises. Abundant East China spot supply pressures spot premiums. SHFE aluminum may stay weak, but month-end low inventories could bolster near-term contracts. SMM predicts the most-traded SHFE aluminum contract to range between 18,000-19,000 yuan/mt from Dec 12 to Jan 10, with focus on domestic inventory and demand.