Aluminium ingot destocking trend continues; macro pressure keeps aluminium prices in the doldrums

Futures: SHFE aluminium closed at RMB 23,315 per tonne, up 0.56 per cent. Although the price rebounded to stand above the MA5 (23,246), it remained capped by the MA10 (23,440) and the dense cluster of medium- and long-term moving averages below (MA30 = 23,972, MA60 = 23,824), with the overall moving average system maintaining a bearish alignment.

The MACD indicator's DIF (-223.65) and DEA (-137.46) ran deep below the zero axis, with the green bar reaching -172.39. The bearish trend remained intact, and the short-term rebound was an oversold recovery. Trading volume shrank sharply to 74,500 lots (below the average volume), reflecting cautious market participation. The suggested core trading range for SHFE aluminium is 23,000-23,600.

LME aluminium closed at USD 3,007 per tonne, down slightly by 0.03 per cent. The price barely held near the MA5 (3,005.2), but remained far below the MA10 (3,044.1), MA30 (3,176.9), and MA60 (3,211.7), with the moving averages showing a steep bearish divergence and a clear medium-term downtrend. The MACD indicator's two lines (DIF = -66.32, DEA = -54.89) formed a death cross downward, with the green bar persisting, and bearish momentum dominated. The suggested core trading range for LME aluminium is 2,955-3,045.

Macro front: Fed Chairman Warsh said he would not prejudge the policy decision at the October FOMC meeting, nor would he signal the rate path for the remaining meetings this year. Warsh emphasised that the Fed has entered a new phase of policy communication and will no longer reveal its decision bias to the market in advance.

Warsh said artificial intelligence is the most important innovation in the global economy in his lifetime, but he remains cautious about its short-term impact. Traders maintained expectations that the Fed will hold rates steady in October.

Fundamentals: Ex-China, production resumptions and new capacity additions of aluminium continued to advance, and expectations of ample supply in the forward curve persisted, weighing on futures sentiment. Although LME aluminium inventory had fallen to a historically low level of 238,400 tonnes, the macro environment remained pressured by expectations of tightening ex-China liquidity. In China, social inventory briefly built up during the National Day holiday before resuming its decline.

According to SMM statistics, as of this Monday, domestic aluminium ingot social inventory destocked by 29,000 tonnes from last Thursday and by 44,000 tonnes from last Monday. After the post-holiday seasonal inventory buildup, inventory shifted back to destocking, confirming consumption resilience. In addition, China exported 656,000 tonnes of unwrought aluminium and aluminium semis in September, up 4.8 per cent M-o-M from 626,000 tonnes in August, exceeding market expectations and showing that export consumption remained resilient.

However, marginal changes warrant caution: the proportion of liquid aluminium in September fell short of expectations, and it is expected to pull back slightly in October, with casting ingot volume increasing M-o-M and aluminium ingot supply seeing marginal expansion.

Primary aluminium market: On the previous trading day, SHFE aluminium prices rebounded, and the price spread between the November and December contracts narrowed. In the central China market, downstream sentiment of rushing to buy amid continuous price rise and holding back amid price downturn was somewhat evident. Coupled with the Friday stockpiling cycle, market purchasing sentiment rebounded notably from the previous day, and trading activity recovered. The final transaction price range in the central China market was around a premium of RMB 150-180 per tonne against the SHFE aluminium November contract.

Aluminium scrap: On the previous trading day, SMM A00 aluminium closed at RMB 23,460 per tonne, up RMB 200 per tonne W-o-W from the previous trading day. On the price spread front: On October 16, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,214 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 715 per tonne.

On the supply side, tax audits in central China continued to deepen, with compliant invoiced aluminium scrap becoming increasingly scarce, and invoice-holding enterprises showed strong willingness to hold prices firm. Competition among enterprises was intense, with some only able to issue 20 per cent of their invoice quotas, keeping effective supply tight. On the import front, this week, imported shredded aluminium prices at Ningbo Port and Tianjin Port were recorded at RMB 20,970 per tonne (tax inclusive) and RMB 21,020 per tonne (tax inclusive), respectively, down RMB 100 per tonne WoW. In the short term, the aluminium scrap market is expected to hold up well, with limited downside.

On the supply side, the scope and intensity of tax audits remain the core variable, and the tight supply of compliant invoiced cargo is unlikely to ease.

On the demand side, downstream scrap utilisation enterprises are operating at moderate rates during the peak season, and with supply and demand both tight, price support is expected to strengthen further. In addition, the price difference between A00 aluminium and aluminium scrap has narrowed again to a historical low, weakening the cost advantage of aluminium scrap and bringing the issue of primary aluminium substitution back to the table. Going forward, close attention should be paid to the spread of tax audits, changes in invoice quotas across regions, and downstream operating pace.

Secondary aluminium alloy: On the previous trading day, ADC12 market quotes were raised by RMB 100 per tonne across the board. Driven by the rebound in aluminium prices and futures, market sentiment recovered somewhat, with some enterprises raising quotes accordingly, showing clear signs of repair after the earlier price pullback.

However, downstream demand improvement remains insufficient, with purchases mainly need-based and limited acceptance of higher prices. Whether market transactions can follow through remains to be seen. Overall, short-term market sentiment has improved somewhat, but demand-side support remains relatively limited. Upside for prices is expected to depend on raw material cost changes and actual transaction conditions.

Comprehensive outlook: On the macro front, rising expectations for US Fed interest rate hikes, a strong US dollar, and high US Treasury yields continued to weigh on nonferrous metal valuations. Fundamentals, production resumptions and new capacity additions ex-China continued to pressure short-term futures sentiment. Aluminium prices are expected to consolidate on a subdued note this week.

Note: This article has been shared by SMM and has been published by AL Circle with its original information without any modifications or edits to the core subject/data.