The macro front was bullish last week. The governor of the People's Bank of China said that the PBOC will lower the deposit reserve ratio by 0.5 percentage points on February 5 to provide liquidity support of one trillion yuan. The State Council meeting emphasized the need to enhance the consistency of macro policy, strengthen innovation and coordination of policy tools, consolidate and enhance the economic recovery, and promote the stable and healthy development of the capital market. Overseas, the market has been concerned about the pace of the Federal Reserve's interest rate cuts. Goldman Sachs said that they expected Fed Reserve to cut interest rates four times this year, with the first interest rate cut in March. Europe and the United Kingdom will follow suit.
Fundamentals: Domestic aluminium production enterprises maintained steady operations, and there were little changes in production capacity. During the week, the Qinghai Bureau of Industry and Information Technology announced the Chinalco Qinghai 600KA electrolytic cell capacity replacement plan. 100,000 mt of unconstructed capacity of Yunnan aluminium will be transferred to Chinalco Qinghai, while other 400,000 mt of production capacity coming from Chinalco Qinghai. The announcement shows that the new production capacity is planned to be put into operation in June 2025. SMM estimates that the domestic aluminium output in January will be 3.56 million mt, flat MoM and up 4.2% YoY. In terms of cost, alumina spot market prices rose slightly, driving up the immediate cost of domestic aluminium. As of Jan 25, the immediate cost of domestic aluminium were around 16,876 yuan/mt, up by 21 yuan/mt WoW. Overseas: In January 23, 2024, Russian aluminium products became one of the key commodities in the EU’s next sanctions. European Union began discussions on a new round of sanctions against Russia, which will be adopted on February 24. This news caused market concern about overseas aluminium supply. However, since the Ukraine-Russia war, the circulation of Russian aluminium metal in the EU market dropped significantly, and the global primary aluminium trade has undergone major changes. If sanctions are confirmed, SMM believes that it may tighten the aluminium supply in European market, but may only affect the direction of aluminium trade from a global perspective. Demand: The overall performance of domestic downstream processing enterprises was weak in the week. Environmental protection control in Henan Province became stricter, and small plate/sheet and strip factories suspended or halted production. The operating rate of aluminium extruders weakened, and some small and medium-sized aluminium extruders in north China cut production and stockpiling as they are about to close for upcoming CNY holiday. In the past two weeks, driven by intensive stocking by PV module factories, the operating rate of some PV extrusion companies rebounded. However, some companies reported that order volumes began to weaken, and they will close for CNY holidays. In the short term, downstream operating rate will remain low. Low operating rate and low enthusiasm for stocking somehow suppressed spot premiums in east and central China.
From a technical perspective, the model predicts that the price range of the closing price of most-traded SHFE aluminium contract will be [18,575, 19,225], the price center will be 18,880, the unit is yuan/mt, the extreme price range will be [18,250, 19,540], the normal price range will be [18,470, 19,330], and the conservative price range will be [18,680, 19,120]. The price is expected to bottom out or rise. The support range will be [18,470, 18,680], and the resistance range will be [19,120, 19,330]. The model predicts that the range of the average price of SMM A00 aluminium will be [18,685, 19,145], with the price center of 18,920, and the unit is yuan/mt. The extreme price range will be [18,400, 19,420], the normal price range will be [18,590, 19,240], and the conservative price range will be [18,780, 19,050]. The price trend is expected to move sideways or go down. The support range will be [18,590, 18,780], and the resistance range will be [19,050, 19,240].
On the macro front, the US market PMI data for January exceeded expectations. The data demonstrated the resilience of the US economy, and expectations for interest rate cuts once again cooled significantly. In China, the macroeconomic environment was positive. The People’s Bank of China announced RRR cuts and will continue to keep a close eye on development of real estate, boosting domestic market sentiment. In terms of fundamentals, as CNY is drawing near, downstream consumption slowed down, but industry inventories remained at low levels driven by a high aluminium liquid ratio and downstream stockpiling before the CNY holiday. SMM predicts that the total domestic inventory accumulation during the 2024 CNY holidays may be lower than levels for the same period of previous years. In the short term, amid low inventory and no obvious imbalance between supply and demand, aluminium prices may fluctuate along with macro sentiment before CNY holidays. The most-traded SHFE aluminium contract and LME aluminium are likely to move between 18,470-19,330 yuan/mt and $2,150-2,320/mt respectively this week. We will continue to pay attention to macroeconomic data such as GDP and durable goods orders in the United States in the fourth quarter, as well as domestic inventory.
