Slow Recovery of Consumption and US Interest Rate Hike Will Put Pressure on Short-Term Aluminium Prices

SHANGHAI, May 5 (SMM) -  The most-traded SHFE 2206 aluminium contract opened at 21,880 yuan/mt last Monday, with the weekly low and high at 20,295 yuan/mt and 21,880 yuan/mt respectively before closing at 20,890 yuan/mt Friday afternoon, down 1,030 yuan/mt or 4.7% on the week. LME aluminium opened at $3,230/mt last Monday, with the weekly high at $3,237/mt before trading at $3,068/mt as of CST 15:00 Friday, down 6.8% on the week.

On the macro front, imminent interest rate hike by the US Federal Reserve sent the US dollar index to the highest in more than two years and battered the global stock and bond markets. Risk appetite in the financial market declined significantly, and commodity prices plunged. Meanwhile, according to the meeting of the Political Bureau of the CPC Central Committee, China will make great efforts to ensure that the GDP growth target of 5.5% is accomplished this year and step up infrastructure construction. China will also encourage local governments to introduce policies to boost the real estate market according to local conditions and avoid systematic financial risks.

Fundamentals: According to SMM’s preliminary estimate, the domestic operating aluminium capacity stood at around 40.19 million mt at the end of April, and the domestic aluminium output is expected to increase 1.8% year-on-year to around 3.31 million mt in April. The operating rates of downstream producers remained low. Transportation problems in Jiangsu, Zhejiang and Shanghai hardly improved. Some downstream sectors saw a significant decline in orders due to sluggish automobile and real estate markets. Limited arrivals, coupled with downstream stocking in Henan and south China ahead of the Labour Day holiday, allowed the social inventory of aluminium ingots to fall sharply. However, lower inventory did not boost market confidence as it was caused by delayed arrivals.  

The CRB commodity index dropped 0.39% on a weekly basis as of last Thursday, while the SMMI index fell 2.03% as of last Wednesday. Base metals prices fell sharply at the beginning of last week due to rising US dollar index and concerns about demand outlook, but then rallied. Affected by shrinking Sino-US interest rate gap, the exchange rate of Chinese yuan against the US dollar exceeded 6.6, which limited the upside room of SHFE aluminium. The daily K-line of SHFE aluminium presented a prominent price-volume divergence from Tuesday to Friday, thus the prices may go down over the next two weeks.

In terms of machine learning, the random forest & time series model predicts that the price range of the most-traded SHFE aluminium contract will be [20265, 21345] after the Labour Day holiday, and the extreme price range will be [19775, 21750]. The LSTM & time series model predicts that the range of SMM A00 aluminium average price will be [20230, 21370], and the extreme range will be [19730, 21730].

The futures technical indicators suggest that the most-traded SHFE aluminium contract may rise initially and then move down from May 5 to May 13. Based on the 4-hour K-line, SMM observed a total of 40 technical indicators, of which 24 were neutral, 5 were bullish, and 11 were bearish.

The downstream production resumption fell short of expectations. Some downstream producers will be closed or lower their output during the Labour Day holiday. At the same time, the domestic aluminium supply is still on the rise. Therefore, the social inventory of aluminium ingots may increase after the holiday as more cargoes begin to arrive, which will put pressure on short-term aluminium prices. The most-traded SHFE aluminium contract is likely to move between 20,000-21,800 yuan/mt after the holiday, and LME aluminium is expected to fluctuate between $2,950-3,250/mt this week.