Pre-holiday destocking trend of aluminium ingots continues, providing strong support for aluminium prices fluctuating at highs

SHFE aluminium closed at RMB 24,230 per tonne, edging up 0.02 per cent. The price was capped by MA5 (24,259) but remained above MA10 (24,207) and MA30 (24,088), with the mid-term bullish structure intact. On the MACD indicator, DIF stood at 92.18 and DEA at 118.60, forming a death cross above the zero axis, with the green bars expanding to -52.85, indicating strengthening bearish momentum.

Trading volume expanded to 76,000 lots, reflecting widening bull-bear divergence. The core trading range for SHFE aluminium is suggested at 24,000-24,600. LME aluminium closed at USD 3,248.5 per tonne, edging down 0.05 per cent. The price broke below MA5 (3,264.1), MA10 (3,261.37), and MA30 (3,262.88), with short-term moving averages exerting pressure, though MA60 (3,227) still provided support.

On the MACD indicator, DIF stood at 1.6 and DEA at 7.57, forming a death cross above the zero axis, with the green bars expanding to -11.94, indicating weak short-term momentum. The core trading range for LME aluminium is suggested at 3,220-3,300.

The US S&P Global manufacturing PMI rose to 57 in September, a 52-month high; the services PMI rose to 58.7, a 59-month high; and the preliminary composite PMI climbed to 58.4, the highest since July 2021. Expectations for US Fed interest rate hikes in October intensified, with US Treasury yields surging sharply, as multiple tenors rose nearly 20bp, and the 3-year, 5-year, 7-year, and 10-year Treasury yields all broke above 5 per cent again. The US Treasury Department announced it would purchase up to USD 6 billion in long-term Treasuries on Thursday. Fed Governor Barr stated that further rate hikes may be needed to ensure inflation returns to target.

Fundamentals: On the supply side, weekly production of domestic aluminium remained stable last week, while some downstream sectors saw certain production cuts, reducing liquid aluminium purchases and lowering the proportion of liquid aluminium by 0.02 percentage points. Outside China, according to foreign media reports, Alba's operating capacity recovered to around 1.3 million tonnes, further lifting operating capacity outside China.

On the demand side, with the short holiday approaching, downstream stocking sentiment improved slightly. On the inventory side, aluminium ingot shipments from Xinjiang were disrupted, and combined with downstream stockpiling, the pace of aluminium ingot destocking widened this week. As of this Thursday, domestic social inventory of aluminium ingots fell by 43,000 tonnes from Monday and by 55,000 tonnes from last Monday. In the short term, the destocking trend for aluminium is expected to continue.

Primary aluminium market: On Wednesday, the SHFE aluminium 2610 contract saw increased volatility, with the overall price centre edging up from the same period yesterday. However, with the holiday approaching, downstream stocking sentiment was moderate, and spot premiums on Wednesday were higher than yesterday.

SMM A00 aluminium ingot spot premiums stood at RMB 10-30 per tonne. As the Mid-Autumn Festival and National Day holidays approach, and with SHFE aluminium futures rebounding slightly, traders holding cargoes in central China tended to sell as soon as possible, but high aluminium prices and insufficient peak-season strength limited buying sentiment among downstream processing enterprises, leaving market trading sluggish.

Final transaction prices in the central China market were mainly in the range of a discount of RMB 50-80 per tonne against the SHFE aluminium October contract. Inventories in the three regions continued to show destocking, with a total decline of 12,500 tonnes.

South China market: On Wednesday, aluminium prices edged up, and the spot market was firm. Significant destocking reappeared, but absolute upward price momentum was still lacking, and the market continued to attempt to hold prices firm and lift them by leveraging the situation. Meanwhile, most participants gradually formed expectations of a stronger spot-futures price spread, which reinforced the willingness to cash out before the holiday.

Shipments increased, and spot circulation quickly loosened from a tight state. After earlier front-loaded restocking, demand shifted to steady buying, with overall cautious wait-and-see sentiment and relatively limited purchasing. However, large players raising purchase prices to make markets once again became a key support, and transactions were overall satisfactory.

Aluminium scrap: On Wednesday, SMM A00 aluminium closed at RMB 24,240 per tonne, down another RMB 30 per tonne from the previous trading day. The aluminium scrap market was mainly in a wait-and-see mode with stable prices. In terms of price differences between A00 aluminium and aluminium scrap, on September 22, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,512 per tonne and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 1,291 per tonne. On the supply side, the tight raw material supply pattern remained unchanged, and the scarcity of compliant, invoiced aluminium scrap continued to rise.

Notably, tax inspections in central China continued to escalate, and the sharp drop in regional aluminium scrap supply will cause significant disruption to aluminium scrap circulation. On the demand side, the cast aluminium alloy "September peak season" was less robust than expected, with demand not yet seeing a substantial increase. End-user orders improved only slightly from the off-season, without forming concentrated restocking.

Demand for wrought aluminium alloy was moderate, and in-factory aluminium scrap inventories were relatively ample. The aluminium scrap market is expected to continue consolidating on a strong note. On the supply side, the impact of tax inspections continues to spread.

If aluminium scrap yards slow down shipments, circulating supply will tighten again, and aluminium scrap prices are expected to receive strong support. Going forward, the focus will remain on continuously monitoring the chain reactions of tax inspections on the aluminium scrap industry chain and changes in orders at scrap utilisation enterprises.

Secondary aluminium alloy: Spot market: On Wednesday, ADC12 market quotes were generally stable. The SMM ADC12 price held steady at RMB 24,500 per tonne from the previous trading day. On the cost side, aluminium scrap raw material prices fluctuated only modestly, but due to stricter enforcement of tax invoice policies, enterprises faced higher compliance procurement requirements, and raw material procurement costs remained at a relatively high level.

Cost support remained strong, and enterprises had limited willingness to proactively lower prices. Although the pace of demand improvement remained relatively limited recently, pre-holiday stocking demand and the rebound in futures provided some support to market sentiment, and some enterprises saw their quotes recover.

Overall, industry prices showed strong resilience under cost support, and the market is expected to continue consolidating on a strong note in the short term. Going forward, close attention should be paid to the progress of tax invoice policy enforcement, changes in aluminium scrap raw material supply, futures trends, and downstream stocking before the upcoming double holiday.

Comprehensive outlook: On the macro front, the heads of state of China and the US met, and the economic and trade lead persons of China and the US held consultations in New York, with expectations of easing China-US relations rising. On the fundamentals front, production resumptions in the Middle East continued to accelerate, but some new projects were delayed, and the pace of operating capacity increases is expected to slow down in the coming months. With the long holiday approaching, downstream stocking demand supported destocking, and aluminium prices are expected to consolidate at highs in the short term.

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.