Aluminium Prices to Fluctuate at High Levels in August

SHANGHAI, Aug 9 (SMM) - SHFE aluminium kept fluctuating upward in July and broke through 20,000 yuan/mt on July 31. The prices hit a new high at 20,190 yuan/mt since May 12 this year on August 1, but then fell back amid the bearish factors in macroeconomics.

Spot prices increased 5.7% on the month in July, and continued to rise after a slight fall in August. The quotation of SMM A00 aluminum ingot was 19,910 yuan/mt as of August 7.

At fundamentals, Inner Mongolia, Guangxi, Guizhou, and Henan started power curtailment in early July, and the power restriction became stricter in Yunnan, which affected the supply of aluminium.

The power cost of aluminium was also trending upward.

China produced 3.28 million mt of aluminium in July, up 5.06% on the year. The average daily output was 106,000 mt, down 1,500 mt from June. The output totalled 22.75 million from January to July, an increase of 7.65% on the year.

The power curtailment and production restriction strengthened on the supply side in July, and the flood in Henan caused two local aluminium plants to reduce or suspend production. China's operating aluminium capacity stood at 38.53 million mt/year in early August, while existing capacity stood at 43.68 million mt/year, leaving the operating rate at 88.2%.

According to SMM survey, aluminium liquid accounted for 66.7% of China’s total aluminium output in July, a decrease of 1.6 percentage points from June.

The market is confident in the further decline in the social inventories of aluminium ingots in August.

Macro liquidity remains abundant, and US dollar slightly edged down.

The impact of the power curtailment and pandemic on the market as well as the release of national reserves will need attention in August.

The expanding power curtailment will affect the aluminium output, and the release of new capacities may be delayed. However, the impact of power rationing on downstream processing companies in some regions of Henan and Guangdong is much slighter as their power consumption is low.

The spreading pandemic will impede transportation and lead to higher transportation costs, which may affect downstream consumption.

If the released volume of national aluminium reserve is in line with the market expectation, aluminium prices are expected to move between 19,500-20,500 yuan/mt in August.