Last week, the macroeconomic environment continued to release positive signals. The Chinese government is making continuous efforts to boost the economy, with the State Council issuing the "Opinions on Promoting High-Quality Development of Service Consumption." The Shanghai headquarters of the central bank held a work meeting for H2 2024, proposing a series of requirements. In the US, the July non-farm payrolls unexpectedly fell short of expectations, rapidly increasing market expectations for a rate cut by the US Fed in September. The Russia-Ukraine war and the situation in the Middle East also showed signs of escalation during the week, adding more uncertainties to the macroeconomic environment.
Fundamentals: With the resumption of aluminium production in Yunnan completed, the growth rate of domestic aluminium supply has slowed. According to SMM data, domestic aluminium production in July 2024 (31 days) was 3.683 million mt, up 3.22% YoY. As of now, the total operating capacity of domestic aluminium is around 43.43 million mt, and the total production in August is expected to slightly increase MoM to around 3.69 million mt.
Cost side: The overall cost of domestic aluminium remained stable during the week. According to SMM monthly cost data, in July, nearly 12% of the operating capacity of domestic aluminium had a full cost of over 19,000 yuan/mt. Entering August, domestic spot alumina hovered at highs, while the costs of other auxiliary materials slightly declined. It is expected that the cost of domestic aluminium will narrowly fluctuate in August. Under weak aluminium prices, these high-cost enterprises will incur losses.
Import market: During the week, the domestic spot import window for primary aluminium remained closed, and the market supply of imported goods remained tight.
Demand side: During the week, domestic downstream operating rate remained weak. Some aluminium processing enterprises in Henan involved in deep well casting reduced production due to special safety production rectifications in the province, while other regions remained stable. Domestic aluminum social inventory continued to deplete slowly, especially in Wuxi, where spot inventory depletion was poor, and spot prices remained at a discount.
The SMM model expects SMM A00 Aluminium Ingot Average Price to run in the range of [18,455，19,215] from last Friday to this Thursday, with price clustering around 18,820 in yuan/mt, an extreme price range of [18,120，19,550], a normal price range of [18,340，19,330]，and a conservative price range of [18,570，19,100]. The price trend for the this week is sideways oscillations or falling. Support is at [18,340，18,570], and pressure is at [19,100，19,330]. The SMM model expects Aluminium Most-traded Contract Closing Price to run in the range of [18,610，19,320] from last Friday to this Thursday, with price clustering around 18,940 in yuan/mt, an extreme price range of [18,310，19,600], a normal price range of [18,510，19,410]，and a conservative price range of [18,710，19,230]. The price trend for this week is sideways oscillations or falling. Support is at [18,510，18,710], and pressure is at [19,230，19,410].
Overall, on the macro side, the US manufacturing PMI and employment data weakened, intensifying recession trading in the short term. A global market liquidity crisis is looming, and overseas macro sentiment is cautious. Domestically, intensive policies on strengthening carbon peaking have been introduced, raising concerns about the supply side of high-energy-consuming industries. On the fundamentals side, the operating capacity of domestic aluminium is gradually stabilizing, and the supply side is peaking. Downstream aluminium operations may remain weak in the short term. With both bullish and bearish factors present in the short term, aluminium prices may remain range-bound, with the cost side of aluminium still providing support. SMM expects the most-traded SHFE aluminum contract to fluctuate between 18,510-19,230 yuan/mt this week. LME 3M may operate between $2,200-2,340/mt. Continued attention is needed on aluminium consumption and macro changes.
