SHANGHAI, Dec 26 (SMM) - On the macro front: The US GDP grew 3.2% quarter-on-quarter on an annualised basis in the third quarter, beating expectations for 2.9%. The revised GDP rose 2.9%, and the initial value rose 2.6%. After the release of the data, the market expected the US Federal Reserve to maintain monetary tightening for a longer period of time, weighing on commodities. COVID infections in China surged, leading to a decline in social and economic activities and sparking market concerns about economic downturn. China kept its one-year loan prime rate (LPR) and five-year LPR unchanged at 3.65% and 4.3% respectively in December, which had remained unchanged for four consecutive months. Policies introduced at China's Central Economic Work Conference fell short of market expectations.
Fundamentals: More than 200,000 mt of aluminium capacity in Guizhou province had been cut as of last week, mainly contributed by Chinalco Zunyi and Guizhou Huaren. Nanshan Group announced that it plans to transfer 336,000 mt of its aluminium capacity, which will be shut down in the future. As of December 23, the company had closed nearly 100,000 mt of aluminium capacity. Aluminium production in Guangxi and Sichuan provinces rose only slightly. The domestic operating aluminium capacity is estimated to be basically stable on a month-on-month basis in December. The operating rates of aluminium plate/sheet, strip, foil, extrusion and secondary aluminium alloy sectors all declined last week as orders continued to fall in the off-season. Another reason is that many employees were infected with COVID and unable to go to work. The operating rates of aluminium wire and cable and primary aluminium alloy sectors remained largely stable. Many downstream producers are planning to close early for the upcoming Chinese New Year, putting aluminium demand at risk of falling further. The domestic aluminium ingot social inventories were at a historical low of 475,000 mt due to fewer arrivals.
To sum up, the global liquidity will tighten further. The increase in domestic aluminium production may be lower than expected in December due to power rationing in south-west China. Despite the off-season for downstream sectors, transactions in the spot market were moderate and spot premiums remained high amid tight supply, reflecting resilient rigid demand. Low inventory and smaller-than-expected supply increment may allow SHFE aluminium to stop falling and stabilise. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,400-19,200 yuan/mt and $2,350-2,500/mt respectively this week.
