Aluminum prices to fluctuate at high levels due to expectations for overseas interest rate cuts and improved macro environment

The macro front remained strong during the week. On one hand, China's manufacturing PMI for May fell below 50%. On the other hand,the Central Political Bureau meeting proposed policy measures to coordinate the digestion of existing housing and optimize the supply of new housing. Overseas, the US dollar index experienced its first monthly decline since December last year, and expectations for a rate cut by the US Fed rebounded. The Bank of Canada announced a 25 basis point rate cut to 4.75%, becoming the first central bank among the G7 to launch an easing cycle. Members of the European Central Bank's Governing Council also indicated that the ECB might soon lower borrowing costs.

During the week, the operating capacity of domestic aluminium stabilized, with only a small amount of production resuming in Yunnan. The total domestic operating capacity was around 42.93 million mt. The new capacity in Inner Mongolia was put into operation slowly, and it is expected to take a long time to contribute to production. Spot alumina prices stabilized during the week, and domestic aluminium costs fluctuated narrowly. As of June 6, the real-time cost of domestic aluminium at about 17,992 yuan/mt, down 15 yuan/mt WoW. Spot prices fell during the week, and the real-time profit of domestic aluminium was about 3,199 yuan/mt, down 505 yuan/mt. Domestic aluminium import business remained unprofitable, with low circulation of overseas aluminum ingots. According to feedback from aluminum ingot traders in Southeast Asia, recent congestion in Asian shipping and ports has somehow hindered the circulation of overseas aluminum ingots, pushing up premiums in some overseas regions. Last week, the operating rate of domestic downstream aluminium remained weak. End-user orders in the automotive and construction sectors were still weak. The operating rates of the extrusion and plate/sheet, strip and foil industries showed a slight decline. Spot discounts sustained, but due to a significant drop in futures prices, the discounts narrowed. End-user purchasing enthusiasm remained moderate, with restocking only as needed. As the Dragon Boat Festival holiday approached and spot aluminum prices adjusted, there was some downstream stocking on June 5 and June 6. Spot inventory of aluminum ingots showed a slight decrease during the week, but aluminum billet inventory grew again.

From a technical perspective, the model predicts that the price range of SMM A00 aluminum average price will be [20,695, 21,470], the price center will be 21,100, the unit is yuan/mt, the extreme price range will be [20,400, 21,820], the normal price range will be [20,600, 21,590], and the conservative price range will be [20,790, 21,350]. The price is expected to move sideways or go down. The support range will be [20,600, 20,790], and the resistance range will be [21,350, 21,590]. The model predicts that the price range of the most-traded SHFE aluminum contract will be [20,955, 21,850], with the price center of 21,350, and the unit is yuan/mt. The extreme price range will be [20,500, 22,210], the normal price range will be [20,800, 21,970], and the conservative price range will be [21,110, 21,730]. The price is expected to move sideways or go down this week. The support range will be [20,800, 21,110], and the resistance range will be [21,730, 21,970].

Overall, from a macro perspective, the US ADP employment data increased by 152,000 in May, marking the smallest gain since January this year. The lower-than-expected ADP data heightened market expectations for a rate cut. The Bank of Canada cut rates for the first time in four years, becoming the first G7 country to do so, and said further rate cuts is expected. Market expectations for easing strengthened, and non-ferrous metals prices rebounded. On the fundamentals, domestic aluminium operating capacity has generally entered a stable transition period, with capacity awaiting resumption mainly concentrated in Yunnan, Sichuan, and Guizhou, leading to a slowdown in production growth. On the downstream demand, the market is relatively weak, with new orders in the industry being sluggish, although some sectors still show resilience in demand. In the short term, the fundamentals of supply and demand are weakening, and domestic aluminum prices are expected to move rangebound. SMM expects the most-traded SHFE aluminum contract to fluctuate between 20,800-21,730 yuan/mt this week, while LME aluminum may fluctuate between $2,600-2,720/mt. We need to pay attention on domestic downstream demand and overseas macro sentiment.