Weak supply and demand to prevent aluminum prices from going up

The macro front was mostly positive. A series of favourable domestic policies boosted the market confidence. The governor of the PBOC said that there will be sufficient policy space and a rich reserve of tools. Beijing relaxed its policy on home purchase restrictions. The State Council stated that it will promote the reduction of operating costs. Overseas, several European Central Bank officials delivered remarks regarding interest rate cut. Russia launched an airstrike on Ukraine following a terrorist attack, and then the head of the Russian Federal Security Bureau said that the US, Britain and Ukraine were behind the attack on the Moscow concert hall. The increasingly tense situation between Russia and Ukraine will lift the gold and commodity market.

Fundamentals: Domestic aluminum operating production capacity moved rangebound in the week. Some aluminium smelters in Yunnan have begun to resume production. The production resumption of more than 500,000 mt will be completed around the end of April. The remaining capacity has been put on hold due to drought and insufficient water and electricity supply. Guizhou Anshun Aluminum Industry has not resumed production. The average daily output of domestic aluminum production in March remained stable MoM. Output may increase slightly by mid-April. SMM estimates that the monthly output of domestic aluminum in March will be 3.56 million mt, up 4% YoY. Cost: The domestic spot alumina prices and the immediate cost of the aluminum industry fell slightly in the week. Given the bullish prebaked anode price trend, the cost of industry may inch higher in April. As of Mar 28, the immediate cost of domestic aluminum was estimated around 16,803 yuan/mt, down 74 yuan/mt from the beginning of March. Affected by the depreciation of RMB and rising overseas aluminum prices, the domestic import window closed. The inventory in the bonded area increased by 8,300 mt WoW to about 19,800 mt in the week. Domestic downstream enterprises operating rate rose slightly. Orders from the extrusion sector continued to flow back to large and medium-sized enterprises. Given the weak processing fees for aluminum billets, downstream extrusion companies restocked aluminum billets, instead of producing them through aluminium ingot. Aluminum billets inventories continued to fall in the week, and aluminum plate/sheet, strip and foil industry remained stable. Aluminum prices swung on strong note, and spot discounts expanded amid sluggish transactions and sufficient spot supply.

From a technical perspective, the model predicts that the price range of SMM A00 aluminum average price will be [19,120, 19,570], the price center will be 19,330, the unit is yuan/mt, the extreme price range will be [18,950, 19,800], the normal price range will be [19,060, 19,650], and the conservative price range will be [19,180, 19,490]. The price is expected to move sideways or swing on a soft note. The support range will be [19,060, 19,180], and the resistance range will be [19,490, 19,650]. The model predicts that the price range of the most-traded SHFE aluminium contract will be [18,865, 19,475], with the price center of 19,210, and the unit is yuan/mt. The extreme price range will be [18,490, 19,850], the normal price range will be [18,740, 19,600], and the conservative price range will be [18,990, 19,350]. The price is expected to move sideways or swing on a soft note. The support range will be [18,740, 18,990], and the resistance range will be [19,350, 19,600].

On the macro front, Fed official Waller said he was in no rush to cut interest rates, and the US dollar index showed resilience. We need to pay close attention to US GDP, PCE price index and other data. There were growing expectations for an interest rate cut by the European Central Bank. The domestic Standing Committee of the State Council required the optimization of real estate policies, which may indicate the introduction of more supportive policies. Many places released policies to encourage trade-in in home appliances and other industries. The domestic macro economy performed well. Fundamentally, the domestic aluminum supply maintained steady growth expectations, and the massive imports impacted the domestic spot market. The aluminum social inventory has not dropped yet. However, industry inventories are about to peak, and downstream consumer demand will support aluminum prices. Spot market may constrain the upside room of SHFE aluminum prices. SMM predicts that most-traded SHFE aluminum will fluctuate at 18,990-19,600 yuan/mt this week, and LME aluminum may fluctuate at $2,250-2,360/mt. SMM will keep a close eye on domestic and overseas macro sentiment and changes in domestic social inventory.