Aluminum market review and post-holiday outlook for 2024 CNY holiday [SMM Analysis]

Review of holiday trends: Terminal consumption slowed down before CNY holidays, and the center of SHFE shifted downward. On February 8, the most-traded SHFE 2403 was down by 0.18%. Fundamentally, the social inventory of aluminum ingots entered an accumulation cycle. During the traditional domestic CNY holiday from February 9 to February 18, 2024, SHFE aluminium was closed, and LME aluminum moved rangebound. It opened at $2227.00/mt on February 9, with the highest point during the week at $2250.00/mt, the lowest point was $2203.00/mt, and closed at $2222.50/mt last Friday, down $4.5/mt, or 0.20%.

From a macro perspective, during CNY, the US PPI increased by 0.9% YoY in January, which was less than expected. The MoM growth accelerated to 0.3%, which was faster than expected. The core PPI increased by 2% YoY and 0.5% MoM. PPI strengthened the possibility that the Fed will be in no rush to cut interest rates. Federal Reserve Chairman Daly said on Friday that the Fed would cut interest rates three times this year as a "reasonable baseline" expectation, but that it needed to consider the slowing progress in reducing inflation and a sudden and sharp deterioration in the labor market. Domestically, the urban real estate financing coordination mechanism has been implemented for one month, the first batch of real estate project "white lists" have been released, multiple departments have coordinated and jointly promoted the implementation of policies, and many banks have intensively docked real estate "white list" projects. China continues to speak out to boost market confidence. We need to continue to pay attention to market feedback on the opening of purchase restriction policies in many places.

From a fundamental point of view, domestic aluminum smelters maintained stable operation during CNY, and Yunnan was still in the dry season. In terms of power supply, wind, solar power, and thermal power increased YoY. However, local aluminum companies are waiting for more clear power supply information, and there are no expectations for changes in production capacity in other regions. In terms of inventory, affected by CNY holiday, the operating rate of domestic aluminum liquid processing downstream enterprises has weakened, and the industry's ingot casting volume has increased. The daily output of aluminum ingots during the holidays may reach 40,000 mt/day, but ingot casting volume declined YoY. The total inventory accumulated during the CNY in 2024 may be difficult to exceed the level of the same period last year, and is expected to be around 150,000-200,000 mt. In terms of consumption, most domestic aluminum downstream processing companies companies arranged the CNY holiday and the resumption of work was concentrated from February 17th to February 19th. Only some downstream processing companies maintained production during the holiday to meet downstream demand and stocked up for CNY holidays. Based on the forecast of downstream resumption of work and production, it is expected that domestic aluminum spot transactions may gradually become active next Monday. However, considering that the amount of ingots cast increases during CNY and the operating capacity is higher than the same period last year, it is expected that the social inventory of aluminum ingots will build up.

In the short term, macroeconomic environment continue to be positive. Although the aluminium inventory entered the traditional inventory accumulation cycle, the extent of inventory accumulation is not large and is lower than the same period in history. Coupled with the gradual resumption of production by downstream processing companies, demand shows a rebound trend. After the holiday, aluminum prices will get some support.

Risks: Domestic consumption is lower than expected