Fed rate hike expectations are easing, as aluminium price technical rebound gains momentum

The most-traded aluminium contract on the SHFE opened at CNY 23,585 per tonne in the overnight session on October 27, reached a high of CNY 23,685 per tonne and a low of CNY 23,545 per tonne, and closed at CNY 23,660 per tonne, up CNY 255 per tonne, or 1.09 per cent, from the previous close. Prices rallied sharply, breaking through the 5/10/20/40/60-day moving averages, which have now turned from resistance to support. Trading volume for the session was 79,411 lots, with open interest at 255,000 lots, an increase of 4,026 lots, mainly due to an increase in long positions.

Technically, the 4-hour MACD extended its "golden cross," with the red bars holding at high levels, indicating strong short-term recovery momentum. The three-month LME aluminium contract opened at USD 3,038.00 per tonne on October 27, reached a high of USD 3,105.00 per tonne and a low of USD 3,023.50 per tonne, and closed at USD 3,097.00 per tonne, up USD 59.00 per tonne, or 1.94 per cent, from its previous close. Prices rebounded sharply, breaking above the 5/10/20-day moving averages, while the 40/60-day intermediate- and long-term moving averages continued to cap gains.

Trading volume for the session was 20,773 lots, with open interest at 561,000 lots, down 4,559 lots as bears reduced their positions and exited the market. Technically, the daily MACD showed a "golden cross" below the zero axis, with the red bars widening, indicating stronger recovery momentum from the lows.

Macroeconomic background: "Fed Speaker" Nick Timiraos wrote that Fed Chairman Warsh wants to stop signalling future policy moves in advance, but several of his colleagues believe the Fed has an obligation to explain to the public how it will respond to changes in the economy.

Warsh has been deliberately cutting back on his public appearances, but most of his colleagues have not followed suit. Recent statements from Fed Chairs Williams and Jefferson have prompted investors to reduce expectations for further rate hikes in the near term.

However, investors have not forgotten that consumer and producer prices in the US rose in both August and September, with rising energy prices being a major factor, and energy prices remain elevated. According to CME "FedWatch": the probability of the Fed keeping the interest rate unchanged this week is 93.4 per cent, and the probability of a cumulative 25 basis point hike is 6.6 per cent.

The probability of the Fed keeping the interest rate unchanged through December is 15.5 per cent, and the probability of a cumulative 25 basis point hike is 15.5 per cent. — 78.9 per cent, and the probability of a cumulative increase of 50 bp is 5.5 per cent.

Fundamentals: Since 2026, the global aluminium market has maintained a tight balance, with producer profitability at multi-year highs. Against this backdrop, the pace of new project construction outside of China has accelerated significantly, and planned capacity expectations are constantly being revised upward.

SMM calculations show that as new capacity is increasingly commissioned in Indonesia, India, the Middle East, and other regions, the global aluminium supply and demand structure will shift from the current deficit to a gradual surplus in 2027, with 2027 potentially becoming a key turning point in this capacity expansion cycle.

Primary aluminium market: East China Market: Yesterday, SHFE aluminium futures declined slightly from the previous trading day, and trading sentiment was mediocre. The spread between near-term futures contracts remained around 280 yuan/tonne, and spot premiums continued to decline. Yesterday, premiums for SMM A00 aluminium ingots were mostly settled at premiums of RMB 180-200 per tonne.

Central China Market:  Spot prices continued to support premiums to SHFE aluminium futures contracts, and the spread between near-term and long-term contracts remained high. Trading sentiment in the Central China market remained subdued, with suppliers willing to quickly sell at lower prices to clear inventory and mitigate risks, while downstream refineries remained reluctant to buy due to high aluminium prices and high inventory levels.

As a result, actual transaction prices in the Central China market ranged from a discount of 10 yuan per tonne to a premium of RMB 10 per tonne over the November SHFE aluminium contract. South China Market: Aluminium prices declined slightly yesterday, and spot market divergence intensified. Absolute prices remained relatively high after the previous day's sharp rise, the backwardation structure in near-term SHFE aluminium contracts widened again, and the basis also remained high. Some suppliers accelerated cash realization at the end of the month amid high prices, and downward adjustments were difficult to halt.

At the same time, amid the general tightening of regional invoicing quotas this year, the premium for goods invoiced in the current month became more noticeable as the year drew to a close, and others firmly held prices higher on this basis. Quotes generally hovered around the average price level, with liquidity alternately abundant and limited. Purchases were mainly made as needed, elastic demand was released in a limited way, and transactions were sluggish.

Aluminium scrap: On the previous trading day, SMM A00 aluminium closed at RMB 23,890 per tonne, down RMB 80 per tonne from the previous trading day. Aluminium scrap prices remained basically unchanged. Regarding price spreads, the spread between A00 aluminium and unpainted mixed aluminium extrusion scrap in Foshan on October 27 was approximately RMB 2,235 per tonne, while the spread between A00 aluminium and shredded aluminium tensile scrap was approximately RMB 736 per tonne.

On the supply side, tax audits in central China continued to escalate, making qualified aluminium scrap with clear invoices increasingly scarce. Suppliers with clear invoices demonstrated strong price controls. Competition among enterprises was intense, and the actual effective supply remained limited. According to customs data, aluminium scrap imports in September totalled 158,800 tonnes, up 12 per cent from the previous month, continuing the recovery trend.

On the one hand, shipping and delivery schedules gradually returned to normal, and cargo replenishments from Southeast Asia continued to increase. On the other hand, the deepening of the peak season to some extent stimulated gradual demand for replenishment of imported scrap stocks. In the short term, the aluminium scrap market is expected to remain resilient, with limited potential for decline.

On the supply side, the scale and intensity of tax audits remains a key variable, and the shortage of invoiced cargo is unlikely to ease. Some industry leaders have further increased tax rates on invoices, intensifying competition among companies for compliant cargo.

On the demand side, scrap processing plants continue to demonstrate robust demand, but pressure from finished product inventories is also restraining purchasing activity for raw materials. Furthermore, the price differential between A00 aluminium and aluminium scrap has recently narrowed to historic lows, eroding the price advantage of aluminium scrap, and the issue of substitution with primary aluminium has once again become a topic of discussion. Going forward, attention should be paid to the spread of tax audits, changes to regional invoice quotas, and the pace of processing plants.

Secondary aluminium alloy: The ADC12 market remained generally stable on the previous trading day, with SMM ADC12 quotes unchanged from the previous trading day. On the cost side, stable aluminium scrap prices coupled with limited supplies of related raw materials kept production costs high, limiting the potential for price declines.

On the demand side, purchasing activity recovered somewhat in the second half of the month, but the overall recovery in final consumption remained limited, providing weak support for spot prices. Overall, the market is currently under the influence of both bullish and bearish factors, and industry participants' willingness to adjust prices is limited. In the short term, ADC12 prices are expected to continue to move sideways, with continued monitoring of raw material price fluctuations and actual purchasing rates by downstream consumers.

Comprehensive outlook: On the macroeconomic front, market expectations for a further Fed rate hike in the near term have weakened, and valuation pressures from the US dollar and base metals interest rates have eased slightly, supporting a recovery in risk-on market sentiment. Fundamentally, the resumption of production and the launch of new capacity outside of China are weighing on futures sentiment, but ongoing inventory drawdowns in China continue to support aluminium prices.

Overall, aluminium prices have grounds to remain high in the short term, thanks to a technical rebound, easing macroeconomic rate expectations, and declining domestic inventories.

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.