SHFE aluminium at downside risk on expected inventory build-up and fading macro impact 

After the US Federal Reserve paused interest rate hike in June, market opinion are split over future interest rate path. Following interest rate cuts by China’s central bank, market is now anticipating more stimulus policies. In terms of fundamentals, the restarts of idled aluminium capacity in Yunnan will bring supply shock in the medium term. Downstream consumption is now in a seasonal lull. Aluminium billet conversions margins declined, and even slipped into negative territory in some cases, which would dampen billet production, and the effect would spill over to liquid aluminium demand. In response, smelters would cut their share of liquid aluminium output and produce more ingots instead. Aluminium ingot social inventories are expected to build up a little after the Dragon Boat Festival. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,000-18,700 yuan/mt and $2,150-2,780/mt respectively this week.