Aluminium prices retreat as bulls reduce positions before the holiday; aluminium under pressure amid risks of post-holiday inventory buildup and weakening demand

The US September consumer confidence index plunged 6.7 points to 81.9, the lowest since 2014 and deteriorating across the board. The University of Michigan survey showed consumers' assessments of their current financial situation and that one year ahead both fell about 10 per cent, with high-price concerns continuing to brew. Inflation pressure showed no signs of easing. US Fed Governor Cook said AI demand growth, rising oil prices, and supply chain disruptions from Middle East conflicts would keep inflation under pressure, but gave no clear guidance on rate hikes. CME data showed the market-implied probability of a 25 bp rate hike in October had risen to 70.9 per cent, and the probability of a cumulative 50 bp hike by December reached 58.7 per cent. Tightening expectations strengthened again, and the stronger US dollar and higher real rates weighed on dollar-denominated base metals valuations.

Supply side, China's weekly aluminium production held steady this week, while the proportion of liquid aluminium slipped 0.62 percentage points M-o-M, mainly because some downstream producers in central China and South China cut or halted production, reducing liquid aluminium purchases. Outside China, new capacity additions and production resumptions continued to lift operating capacity. Demand side, downstream enterprises' pre-holiday stockpiling ahead of the long holiday drove destocking of aluminium ingot and billet social inventories. Traditional peak-season demand rigidity remained, but downstream operating rates declined around the holiday. This week, the weekly operating rate of leading downstream enterprises fell 1.6 percentage points M-o-M, with demand weakening in the near term.

Overall, macro sentiment is broadly bearish. On fundamentals, aluminium ingot inventories are expected to see a slight short-term buildup after the holiday, processing fees for some downstream products still face further downside risk, and casting ingot expectations have risen further. With inventory buildup and near-term demand weakness, aluminium prices are expected to face resistance on the upside. Meanwhile, aluminium ingot social inventories have gradually destocked to normal levels, limiting downside as well. The most-traded SHFE aluminium contract is expected to trade at RMB 23,300-24,300 per tonne in the week after the holiday, and LME aluminium at USD 3,150- 3,250 per tonne. Going forward, close attention should be paid to China's aluminium semis exports and operating performance of aluminium rod and billet.

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.