Supply cuts and soft demand to keep SHFE aluminium prices in check

The U.S. Producer Price Index (PPI) in October saw its largest drop since April 2020, suggesting easing inflationary pressures. A significant fall in the U.S. dollar index lessened its downward pressure on commodities. Stable domestic economic data and improved China-US relations lifted market sentiment. Fundamentally, Yunnan aluminium smelters are cutting production, potentially decreasing domestic operating capacity by over 2%. Yet, the off-season for downstream consumption will significantly delay the impact of this reduced supply. Short-term, weak consumption fundamentals limit upward aluminium price momentum. But medium to long term, robust consumption expectations and slow supply recovery provide strong price support. The most-traded SHFE aluminium contract is projected to trade at 18,500- 19,300 yuan/mt in week ending Nov 24, while LME aluminium may move between $2,190-2,280/mt. Downstream companies' operating rates will be closely monitored.