Macro front weakens, LME squeeze heats up

Macro front:

Ex-China, the US non-farm payrolls data released last week significantly beat expectations; coupled with October CPI rising 0.4 per cent M-o-M overall (0.6 per cent in September) and core CPI rising 0.3 per cent M-o-M, exceeding market expectations for three consecutive months, inflation stickiness has yet to fade. CME data shows the probability of a 25 bp rate hike in December is around 60 per cent, with another roughly 10 per cent betting on a 50 bp hike; the US dollar index climbed to a two-week high, weighing on dollar-denominated nonferrous metals valuations. Meanwhile, signs of easing in the Middle East situation emerged, with the US indicating no need for large-scale combat operations in Iran, and geopolitical risk premiums cooled notably.

Fundamentals:

Supply side, China's aluminium production was basically stable with almost no growth, and replacement projects only released sporadic output; ex-China, production resumptions at Middle East EGA, Al Taweelah, and Alba continued to advance. Al Taweelah has resumed 776 pots, reaching 61 per cent of capacity, and EGA is expected to reach full production in Q1 2027; Indonesia's small K 350 kt new capacity came online.

However, near-term ex-China supply has evolved into the most severe squeeze in decades. This week, LME aluminium inventory fell to 226,700 tonnes, with a cumulative year-to-date decline of 56 per cent; on Wednesday, LME spot prices against three-month futures premiums once surged to USD 147 per tonne, refreshing a more than 30-year high, and the Tom per next spread once hit USD 31.73 per tonne, the highest since 2021, before pulling back to around USD 1; LME data shows four undisclosed bulls collectively held at least 25 per cent of open interest in the November contract, which expires on November 18, and bears face substantial squeeze risk. If dominant position shares rise further, LME could trigger forced lending rules. It should be emphasized that Indonesia's new production has not yet completed LME delivery registration and cannot enter exchange inventory in the short term, coupled with tight deliverable supply and high spot premiums in the market, which is the key reason the squeeze is difficult to ease quickly.

Demand side, aluminium prices plunged sharply this week, with the most-traded contract pulling back from RMB 23,175 per tonne at the start of the week, tumbling 3.45 per cent in a single day on November 10 to RMB 22,420 per tonne, hitting an intraday low of RMB 22,430 per tonne on the 11th, a near 11-month low, then rebounding more than 2 per cent on the 12th to RMB 22,735 per tonne, with clear characteristics of rising open interest amid declines. This Thursday, aluminium ingot social inventory stood at 489,000 tonnes, destocking by 18,000 tonnes from Monday and down 32,000 tonnes from last Thursday; however, October aluminium processing industry PMI fell below the 50 mark to 48.9 per cent, the October peak season ended, and the proportion of liquid aluminium slipped M-o-M, with demand and supply pressures gradually becoming evident. October unwrought aluminium and aluminium semis exports totalled 593,900 tonnes, down 62,000 tonnes or 9.5 per cent from September's 656,000 tonnes. Moreover, the market widely expects November exports to continue declining MoM amid inverted domestic and overseas prices, adding another downward revision to Q4 demand expectations.

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.