Aluminium prices consolidate ahead of National Day holiday; watch for post-holiday inventory buildup and concentrated arrivals risks

1. Macro perspective

The US-Iran conflict entered its second week. After the escort coalition intervened, traffic through the Strait of Hormuz partially recovered, but war risk insurance rates remained elevated. Brent crude pulled back from a high of USD 101 to consolidate around USD 95, with energy cost support weakening from earlier levels but not yet fading. The US Fed delivered a 25bp rate hike at its September FOMC meeting, and the dot plot indicated one more hike may still occur this year. Chair Warsh struck a hawkish tone in his post-meeting remarks, and the US dollar index held at a 13-month high. Next week, attention turns to China's official PMI on September 30, as well as US PCE and non-farm payrolls data during the National Day holiday—with China's market closed for seven days while the LME trades continuously, there is gap risk after the holiday from accumulated moves on the LME, and safe-haven demand in the capital market is rising.

2. Fundamentals

Outside China, aluminium production resumptions continued to advance, and expectations of ample supply in the longer term persisted. However, LME aluminium inventory stood at only 241,000 tonnes, remaining at historically extreme lows, and the global visible inventory destocking trend remained intact. In China, demand during the "September peak season" showed overall recovery, and with Xinjiang shipments disrupted and downstream restocking ahead of the holiday, social inventory continued to destock. According to SMM statistics, China's aluminium ingot social inventory stood at 678,000 tonnes on September 24, down sharply by 55,000 tonnes W-o-W from last Thursday. However, marginal changes warrant caution: the proportion of liquid aluminium declined this week, and casting ingot volumes at aluminium smelters increased M-o-M, signalling marginal supply expansion on the ingot side. The main reason is that aluminium billet processing fees remained persistently low, prompting billet enterprises in some regions to cut production proactively, which in turn reduced demand for direct liquid aluminium supply and diverted more liquid aluminium into casting ingots.

3. Overall assessment

On the macro front, the US Fed's hawkish rate-hike cycle has restarted, with a strong US dollar and elevated US Treasury yields continuing to weigh on nonferrous metal valuations. On the fundamentals side, while China's inventory remains low and destocking continues, rising casting ingot volumes combined with aluminium billet production cuts have weakened liquid aluminium demand, and position adjustments ahead of the National Day holiday have intensified the tug-of-war between longs and shorts. Aluminium prices are expected to consolidate next week, with the most-traded SHFE aluminium contract trading in the range of RMB 23,800-24,300 per tonne and LME aluminium at USD 3,150-3,250/mt. Caution is needed regarding inventory risks from concentrated arrivals of aluminium ingots after the National Day holiday, as seasonal inventory buildup and the easing of Xinjiang shipment disruptions could materialise.

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