Aluminium inventories in China still at record highs, capacity cut to keep aluminium prices firm

According to an SMM update, inventories of aluminium on the SHFE in the week ending Oct. 27 stand at 636,270 tonnes, up 20,900 tonnes from last week. A stronger dollar weighed down base metals on last Friday’s night trading and base metals are expected to trade in a wider range in the short term.

Average A00 aluminium ingot price dropped from RMB 16,190/t to stand at RMB 16,120/t on October 30 today.  A00 aluminium ingot prices across all individual markets have also dropped consequently.

In China, on Monday, the most active SHFE aluminium 1711 opened at RMB 16,120/t after closing  at RMB 16,195/t on Friday. SHFE aluminium is expected to move within a range of RMB 16,350-16,550/tonne today.

SMM also predicts that despite production controls, aluminium market will face no deficit in 2018. SMM’s forecast is based on the fact that aluminium stocks in China’s seven major markets are still at record highs of 1.7 million tonnes. Downstream consumption is under risks of slowing down due to higher metal prices.   

The release of supply-side reforms and winter cut policies is almost over in China. Actual winter cuts in China will take effect soon, which is expected to keep aluminium prices firm in the fourth quarter this year.

According to SMM prediction, alumina capacity cuts will outweigh those of aluminium. Roughly 2.67 million tonnes of annual aluminium capacity will be cut in winter heating season whereas; about 12 million tonnes of annual alumina capacity might be lost in the same period. Final capacity reduction for aluminium, according to SMM will stand at about 1 million tonnes at the most.