SHANGHAI, Sep 13 (SMM) - The most-traded SHFE 2210 aluminium contract opened at 18,110 yuan/mt last Monday, with its weekly low at 18,065 yuan/mt before closing at 18,965 yuan/mt on Friday afternoon, up 855 yuan/mt or 4.72% on the week. LME aluminium opened at $2,302/mt last Monday, with its weekly low and high at $2,233/mt and $2,343.5/mt respectively before trading at $2,329.5/mt as of CST 15 on Friday, up 1.2% on the week.
On the macro front, the European Central Bank raised interest rates by 75 basis points last week, and subsequently US Fed Chairman Powell reiterated his stance of continuing to raise interest rates in order to curb inflation. The People's Bank of China lowered the foreign exchange deposit reserve ratio of financial institutions, and stated that it will adhere to a prudent monetary policy while strengthening the foundation for economic recovery and development.
Fundamentals: It is expected that aluminium smelters in Yunnan will reduce their production by 10-20% after the Mid-Autumn Festival. The installed aluminium capacity in Yunnan stood at 5.61 million mt as of September 9, while the operating capacity was 5.22 million mt, accounting for 12.8% of China’s total operating capacity. The province produced 442,000 mt of aluminium last month, 12.7% of China’s total. Given the slow production recovery in Sichuan, the domestic operating aluminium capacity may drop to around 40.5 million mt if smelters in Yunnan are also subject to power rationing. Meanwhile, the overseas aluminium production cuts have exceeded 1.5 million mt so far this year. The domestic aluminium downstream consumption picked up slightly, but was still weaker than in the same period of previous years. The approaching Mid-Autumn Festival and rising aluminium prices stimulated the enthusiasm of downstream restocking. The social inventories of aluminium ingots kept destocking and were lower than in previous years.
Despite tightening liquidity, the domestic and overseas supply disruptions, as well as falling domestic social inventories, should keep aluminium prices in an upward trajectory. However, weaker-than-expected demand may constrain the upside room of aluminium prices. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,300-19,800 yuan/mt and $2,300-2,480/mt respectively this week. The market shall closely watch how the supply cuts and consumption recovery will evolve.
