Inventory drawdown supports aluminium prices; Weakening demand at end of peak season limits rebound space

Futures: SHFE aluminium closed at RMB 23,170 per tonne in the daytime session (down 0.22 per cent), moving sideways. Prices barely held above the MA5 (23,111) but were capped by the MA10 (23,199) and MA30 (23,352), with the bearish alignment of moving averages unchanged. The MACD formed a golden cross below the zero axis (DIF -132.31, DEA -150.30), with the red histogram expanding to 35.98, but trading volume shrank sharply to 43,600 lots, and the volume-price divergence limited the rebound height. The core trading range for SHFE aluminium is suggested at 22,900-23,400. LME aluminium closed at USD 3,082 per tonne (up 0.31 per cent). Prices held above the MA5 (3,063.8), MA10 (3,072.5), and MA30 (3,068.4), but remained capped by the MA60 (3,166.4), in a weak recovery phase within the downtrend. The MACD formed a golden cross below the zero axis, with the red histogram expanding to 20.81, and trading was sluggish. The core trading range for LME aluminium is suggested at 3,050-3,100.

Macro front: The Customs Tariff Commission of the State Council announced that starting from 13:01 on Nov 10, the 24 per cent additional tariff rate on the US would remain suspended for two months, while the 10 per cent additional tariff rate on the US would be retained. As the US has repeatedly indicated plans to replace the tariffs under the International Emergency Economic Powers Act, which have been ruled invalid, with Section 301 tariffs, China will continue to closely monitor subsequent US actions and adjust tariff countermeasures as appropriate.

Fundamentals: Supply side, operating aluminium capacity in China stayed high, and weekly aluminium production continued to edge up this week. Ex-China, production resumptions at capacity that had been cut in the Middle East progressed slightly faster than expected, and with new capacity in Indonesia coming online, aluminium supply continued to recover. LME aluminium inventory remained near a two-decade low of around 229,000 tonnes. Demand side, downstream purchases were mainly need-based restocking, with limited willingness to chase higher prices. Inventory-wise, according to SMM statistics, as of this Monday, China's aluminium ingot social inventory fell by 14,000 tonnes from last Thursday and by 40,000 tonnes from last Monday, providing some support to aluminium prices. However, the aluminium processing industry composite PMI fell below the 50 mark to 48.9 per cent in October, and signs of weakening downstream processing demand increased as the peak season drew to a close, with the proportion of liquid aluminium edging down WoW this week.

Primary aluminium market: East China market: In the previous trading day, SHFE aluminium futures rose slightly during the day, and the nearby-month backwardation narrowed to RMB 270-300 per tonne. Market trading sentiment improved slightly, and spot premiums halted losses. SMM A00 aluminium ingot prices were at a discount of RMB 30-10 per tonne against the SHFE aluminium 2611 contract. Central China market: Trading sentiment in the central China market was even more sluggish than last Friday. Entering November, downstream processing enterprises have begun cutting production due to environmental protection-driven production restrictions, and with relatively high in-plant inventory from earlier, purchase willingness weakened M-o-M. Actual transaction prices in the central China market were ultimately centered around a discount of RMB 100-110 per tonne against the SHFE aluminium November contract. South China market: Aluminium prices rose sharply yesterday, and the spot market came under pressure and weakened. On Friday, quotes in the market diverged significantly. Over the weekend, inventory continued to fall to new lows, and with the nearby-month backwardation narrowing, sellers generally attempted to hold prices firm and sell slowly in early trading. However, under the dual stimulus of high absolute prices and high basis, the desire to clear spot cargo promptly and monetize at high levels gradually took over, with quotes being lowered repeatedly and more discounted cargo circulating. Buyers were unwilling to accept the double-high situation, only purchasing discounted spot cargo at the minimum level for need-based restocking; otherwise, they preferred not to buy and instead drew down inventory first. Supply was relatively strong while demand was weak, and transactions were lackluster. Spot transaction prices were concentrated at premiums of RMB 260-300 per tonne against the SHFE aluminium 2611 contract.

Aluminium scrap: SMM A00 aluminium prices closed at RMB 23,540 per tonne yesterday, up another RMB 200 per tonne WoW from the previous trading day, and the aluminium scrap market generally followed the rise. Supply side, tax inspections in multiple regions continued to deepen, and the scarcity of compliant, invoiced aluminium scrap showed no signs of easing. Enterprises holding invoices remained firm in their pricing intentions, and most aluminium scrap quotes held steady at the start of the week amid a wait-and-see stance. Demand side, off-season characteristics began to emerge. With aluminium scrap costs elevated and finished product prices difficult to raise, theoretical margins were compressed, and scrap utilization enterprises' willingness to chase higher prices and purchase weakened notably. Wrought aluminium alloy enterprises continued to push for lower prices, and the downward pressure on the wrought aluminium alloy scrap segment continued to be released. In the short term, with the triple factors of weakening primary aluminium support, increased import arrivals, and insufficient demand as the off-season begins, upward momentum has clearly weakened, and prices are more likely to show a resilient adjustment after edging down in line with primary aluminium. By category, the aluminium tense scrap segment remained relatively firm, supported by cast aluminium alloy orders and low inventory, while the wrought aluminium alloy scrap segment still faces the possibility of catching down under price pressure from wrought aluminium alloy enterprises. Going forward, focus should be on the spread of tax inspections and changes in invoicing quotas across regions, the actual realization of primary aluminium substitution after the price difference between A00 aluminium and aluminium scrap narrows to low levels, and the pace of decline in downstream operating rates during the off-season.

Secondary aluminium alloy: ADC12 market prices were generally raised by RMB 100 per tonne yesterday. As aluminium prices halted losses and rebounded, market sentiment recovered somewhat, and rising prices of raw materials such as aluminium scrap drove up production costs for alloy ingots. Against this backdrop, the earlier wait-and-see sentiment eased somewhat, and market quotes gradually followed the market higher. However, the current price increase is more of a passive follow-through driven by cost-side and market sentiment improvement, while end-use demand remains mediocre, and whether actual transactions can follow through remains to be seen. In the short term, ADC12 prices are expected to consolidate within a narrow range, with attention needed on raw material price changes and downstream actual purchases.

Overall outlook: Overall, on the macro front, hawkish tightening expectations are wrestling with a short-term rebound in the weak US dollar. On the fundamentals side, destocking provides a floor, but downstream processing demand is weakening and the peak season is drawing to a close, leaving fundamentals similarly mixed. In the short term, aluminium prices are expected to consolidate on a subdued note. Going forward, focus should be on China's aluminium semis exports and the sustainability of destocking.

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.