Aluminium Prices And Production Changed Amid Cautious Macro Sentiment

The aluminium market continues to face challenges as the US dollar index hits a three-month high and the market awaits the release of US non-farm payrolls and inflation data. In addition, aluminium production reduction in Yunnan had a positive impact that has receded, while downstream operating rates rose very slowly during the peak season.

Aluminium Prices

The most-traded SHFE aluminium contract and LME aluminium are expected to move between 17,800-18,800 yuan/mt and $2,230-2,430/mt, respectively, this week. Aluminium prices face downside risk due to the cautious macro sentiment, slowly rising downstream operating rates during the peak season and high social inventories.

Factors Affecting Aluminium Production

Aluminium smelters in Sichuan and Guizhou have continued to resume production, albeit at a slow pace. Guangyuan Aluminium is operating at full production, while Guizhou Xingren Denggao’s new capacity has ramped up. Orders and operating rates in downstream sectors have barely changed, with a slight increase in the extrusion and secondary alloy sectors. Orders for industrial extrusion from the photovoltaic segment are relatively optimistic, while orders received by secondary alloy producers have fallen short of market expectations.

Macro Front Developments

US Federal Reserve Chairman Powell’s warning that the interest rate hike pace may be accelerated has resulted in the US dollar index hitting a three-month high. Meanwhile, the Chinese government is making efforts to promote economic recovery and maintain market confidence. The People’s Bank of China has said it will implement a sound monetary policy to create a suitable monetary and financial environment for high-quality economic development. The National Development and Reform Commission has stated that it will make greater efforts to stabilise the supply and prices of commodities, while the Minister of Housing and Urban-Rural Development has expressed confidence in the stabilisation of the real estate market.

Insight

Due to low-end demand, primary alloy producers’ output is unlikely to increase. The slow recovery in demand will limit the rise in operating rates for makers of aluminium plate/sheet, strip, and foil. Additionally, the domestic social inventory of aluminium ingots has decreased marginally, but Wuxi continues to experience high inventory pressure. The macro sentiment is still cautious because the market usually anticipates US interest rate increases. Aluminium prices will be under pressure to decline if the non-farm payroll data comes in higher than expected.

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