Softening consumption and policy expectations to leave aluminium prices drifting sideways

The macro front remained positive. The People's Bank of China said the counter-cyclical and cross-cyclical adjustment will be strengthened, and monetary policy tools are ample. Overseas, the non-farm payrolls data released by the United States in December beat expectations, easing the expectation for the Fed's interest rate cut in March. However, the Federal Reserve officials later said that they expected to cut interest rates twice this year, with the first interest rate cut in the third quarter, underpinning expectations for global sufficient liquidity.

In terms of fundamentals, the domestic aluminium production was largely stable last week. The power supply in various regions are stable, with no large-scale output cut expectations in the short term. As of now, domestic aluminium operating capacity was nearly 42 million mt, with daily output of around 115,000 mt/day. Some aluminium smelters are expected to increase aluminium ingot in late January, but the current amount of aluminium ingot produced remain at a low level. In terms of imported aluminium ingots, there were a small amount of Russian and Australian aluminium in the spot trade market in south China in the week, with the prices being slightly lower than that of domestic ordinary aluminium. Some downstream producers restocked as needed. During the week, domestic alumina spot price continued to rise. The power and auxiliary material costs remained stable. The real-time full costs of smelters were up by 136 yuan/mt WoW to 16,839 yuan/mt. As of last Thursday, domestic spot aluminium prices were 19,100 yuan/mt, and the profits of industry dropped by 268 yuan/mt WoW to around 2,260 yuan/mt. In terms of demand, domestic downstream operating rates continued to be weak during the week. As northern aluminium extrusion companies entered the off-season, most companies focused on increasing cash flow and inventory clearance. The aluminium plate/sheet, strip and foil industry was relatively stable, but Henan once again issued air pollution orange alert, affecting the production of some small aluminium processing companies. In addition, near the end of the year, aluminium processing industry prepared for the upcoming CNY holiday. Some aluminium processing companies will shut down from the end of January to mid-February, longer than in previous years. Domestic aluminium ingot inventories fell during the week, combined with tight spot market due to the approaching delivery, improving the spot premiums in Wuxi and south China markets.