Mixed fundamentals, aluminium prices expected to consolidate on a moderate note

Macro front: Excluding China, the US Federal Reserve decided to keep the federal funds rate unchanged at 3.75 per cent-4 per cent at its October FOMC meeting by a vote of 10-2. Governor Cook and Cleveland Fed President Hammack advocated for a 25 basis point increase. The statement upgraded the economic assessment to "strong expansion." Chairman Warsh emphasised the anti-inflationary stance and rejected a "soft inflation target," without providing clear guidance on December policy. The US CPI rose 3.7 per cent year-over-year in September, with core CPI up 2.6 per cent year-over-year, showing persistent inflationary rigidity. CME data showed that the probability of a 25 basis point increase in December remained high, extending tightening expectations and putting pressure on valuations of dollar-denominated base metals. Following the meeting, the US dollar index retreated in the short term but generally held firm. Meanwhile, the University of Michigan's October Consumer Confidence Index came in at 48.0, near a record low. Although the Conference Board's October Consumer Confidence Index unexpectedly rebounded to 91.7, the ongoing conflict in the Middle East continued to drive up energy prices, leaving the economic outlook still pessimistic.

Fundamentals:

On the supply side, China's operating aluminium capacity remained high, and weekly aluminium production in China continued to increase slightly this week. Excluding China, production restarts at Middle Eastern capacity that had been cut progressed slightly faster than expected, and with new capacity in Indonesia coming online, aluminium supply continued its recovery trend. LME aluminium inventories remained near 229,000 tonnes, a near 20-year low.

On the demand side, aluminium prices retreated after a rapid increase this week. Earlier in the week, supported by low inventories, SHFE aluminium briefly rose above RMB 23,400 per tonne, before falling for consecutive sessions to around RMB 22,900 per tonne. Purchases by transformers were mainly for replenishment as needed, with limited willingness to chase higher prices. On Thursday of this week, China's social inventory of aluminium ingots fell by 28,000 tons compared to the previous Thursday, providing some support to aluminium prices. However, the composite PMI for the aluminium processing industry fell below the 50 mark to 48.9 per cent in October, and signs of weakening transformer processing demand increased as the peak season drew to a close. The liquid aluminium share declined slightly compared to the previous month this week.

Overall, the macroeconomic outlook presents a tug-of-war between expectations of aggressive tightening and a short-term rebound of the weakening US dollar. On the fundamentals side, inventory reductions offer some support, but downstream processing demand is weakening and the peak season is nearing its end, leaving the fundamentals mixed. Aluminium prices are expected to consolidate with a subdued tone in the near term. Next week, the next-month SHFE aluminium contract is expected to trade between 22,800 and RMB 23,600 per tonne, and the more actively traded contract between 22,500 and RMB 23,300 per tonne. LME aluminium is expected to trade between USD 2,950 and USD 3,090 per ton. Going forward, attention should be paid to China's exports of semi-finished aluminium products and the sustainability of the inventory reduction.

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.