Chinese Economic Recovery May Partially Counteract The Negative Impact Of Overseas Macro Headwinds On SHFE Aluminium

A strengthening US dollar index and expected overseas interest rate hikes piled pressure on LME aluminium market during the National Day holiday, while a rapid recovery Chinese economic recovery was felt from impact of the stimulus of currency, fiscal and real estate policies. The PMI data released by China’s National Bureau of Statistics in September said that the manufacturing industry PMI recorded 50.2%, compared with 49.7% of previous value and 50.1% of expected one, further confirmed a pick-up of consumption. Positive policies may further put Chinese Economy on track to improve. Furthermore, domestic economic data may offset negative impact of overseas macro market on SHFE aluminium to a certain extent. In terms of fundamentals, the domestic aluminium supply side is approaching its peak, and it is unlikely to mount sharply on the near-term horizon. After relentless replenishing overseas demand for aluminium ingots within the holiday, post-holiday aluminium market witnessed a heavy piling-up of social inventory, but the total inventory was still at a historical low for the same period level. Given that growth rate of supply will cool significantly, more transactions of long-term contracts will be monitored. According to the current survey of operating rate of domestic downstream sectors, growing demand for aluminium for construction and a slight PV module inventory reduction will probably leave aluminium extrusion market with order hikes after the holiday. Furthermore, aluminium plate/sheet, strip and foil sectors headed into a peak season. Therefore, aluminium social inventory may shrink in mid-October, bolstered by consecutive replenishing demand from downstream sectors.