SHANGHAI, Sep 5 (SMM) - The most-traded SHFE 2210 aluminium contract opened at 19,030 yuan/mt last Monday, with its weekly low and high at 17,790 yuan/mt and 19,250 yuan/mt respectively before closing at 18,110 yuan/mt on Friday afternoon, down 710 yuan/mt or 3.77% on the week. LME aluminium opened at $2,475/mt last Tuesday, with its weekly low and high at $2,288/mt and $2,478/mt respectively before trading at $2,301/mt as of CST 15 on Friday, down 5.5% on the week.
On the macro front, Europe and the United States have sent hawkish signals. Growing expectations for a 75 basis point hike in interest rate at the US Fed’s September meeting sent the US dollar index to a 20-year high of 109.66. Preliminary estimates showed that the euro zone's CPI increased by 9.1% year-on-year in August, which beat expectations and broke a new record high. An official of the European Central Bank (ECB) said it is necessary to "resolutely" raise interest rates by at least 50 basis points and did not rule out the possibility of a 75 basis point hike. The Caixin China manufacturing PMI slid 0.9 point from July to 49.5 in August, indicating that the manufacturing sector returned to the contraction territory after two months of expansion.
Fundamentals: Electricity supply in Sichuan was restored last week, allowing enterprises across the aluminium industry chain to resume their production. However, only Guangyuan Zhongfu put its new capacity into operation, while other smelters were mostly cleaning or repairing their electrolytic cells, which will not be restarted fully until this week. The operating aluminium capacity in Sichuan will not fully recover until the end of October. Recently, the water level of some reservoirs in Yunnan has declined from last year. Power companies in Yunnan are negotiating with local enterprises over power rationing. Local aluminium smelters may reduce their power load by 10-30%. It is expected that some smelters will confirm this week whether or not they will cut their production. As of September 2, the domestic operating aluminium capacity has dropped 700,000 mt from the end of July to 40.7 million mt, easing the supply pressure. Aluminium smelters in Europe are vulnerable to production reduction amid the prolonged energy crisis. The domestic downstream consumption improved slightly. The operating rates of downstream enterprises in Sichuan, Chongqing, Jiangsu and Zhejiang picked up after the power rationing was lifted. However, the recent outbreak of the pandemic in many parts of China disrupted downstream production and transportation.
To sum up, growing expectations for overseas interest rate hike will inhibit the upward room of aluminium prices. High energy prices overseas and domestic power shortages will provide cost support to aluminium prices, while limited growth of new orders received by downstream enterprises has diminished market confidence over the demand outlook. The most-traded SHFE aluminium contract and LME aluminium are expected to fluctuate between 17,500-19,000 yuan/mt and $2,250-2,500/mt respectively this week. The market shall closely watch potential supply disruptions in Yunnan and other regions.
