The US Federal Reserve's decision has been made, the rise in aluminium prices meets resistance, and a sideways movement is expected in the short term

The most-traded aluminium contract on the SHFE opened at CNY 23,465 per tonne in the overnight session on October 28, reached a high of CNY 23,500 per tonne and a low of CNY 23,285 per tonne, and closed at CNY 23,355 per tonne, down CNY 185 per tonne, or 0.79 per cent, from its previous close. The rebound met resistance and retreated, with prices falling below their 5-, 10-, and 40-day moving averages. So far, only the 20-day moving average has provided support, while the 60-day moving average remains an overhang.

Trading volume for the session was 85,300 lots, with open interest at 247,000 lots, down 2,524 lots, primarily due to the unwinding of long positions. Technically, the 4-hour MACD maintained a golden cross, but the red bars narrowed significantly, indicating that the short-term rebound momentum is weakening and consolidation is underway. The three-month LME aluminium contract opened at USD 3,093.00 per tonne on October 28, reached a high of USD 3,110.50 per tonne and a low of USD 3,054.00 per tonne, and closed at USD 3,081.00 per tonne, down USD 16.00 per tonne, or 0.52 per cent, from its previous close.

Prices surged but came under pressure and retreated, holding above the 5-day and 10-day moving averages, while the 20-, 40-, and 60-day intermediate- and long-term moving averages continued to limit gains. Trading volume for the session was 23,934 lots, and open interest was 564,000 lots, up 2,945 lots, with bears adding to their positions. Technically, the daily MACD maintained a golden cross below the zero axis, and the red bars widened slightly, indicating that the recovery rhythm is maintaining at low levels, but upside momentum is insufficient.

Macroeconomic background: The US Federal Reserve concluded its two-day monetary policy meeting on the 28th and announced that it would keep the target range for the federal funds rate unchanged at 3.75 per cent to 4 per cent. This decision was in line with broad market expectations. The Federal Open Market Committee made the decision by a 10-2 majority vote, with Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack voting against, advocating for another 25 basis point rate hike.

The US dollar index fell sharply following the news. According to CME FedWatch data, the chance of the Fed keeping the rate unchanged through December is 21.6 per cent, and the chance of a cumulative 25 basis point hike is 78.4 per cent. The chance of the Fed keeping the rate unchanged through January of next year is 7.2 per cent, the chance of a cumulative 25 bp hike is 40.6 per cent, and the chance of a cumulative 50 bp hike is 50.5 per cent - 52.2 per cent.

Fundamentals: Looking to 2027, SMM expects domestic aluminium production capacity in China to approach its ceiling, with limited new capacity additions ahead. Outside of China, production is expected to increase significantly in 2027 compared to 2026, driven by both new capacity additions and restarts, with Indonesia emerging as a new driver of output growth.

Regarding the supply-demand balance, SMM expects the global aluminium market to be characterised by a supply deficit, with a transition to more liberal conditions expected in 2027. In this context, aluminium prices are expected to come under pressure. Domestically, aluminium in China is expected to be oversupplied in 2026, with the oversupplied market expected to narrow somewhat in 2027.

In terms of pricing, SMM expects aluminium prices in 2027 to exhibit a pattern in which the domestic market outperforms the overseas market and a backwardation structure. In terms of stocks, China's aluminium ingot stocks fell by 4,000 tons on Monday and were 34,000 tons below last Thursday's level as of Thursday.

Primary aluminium market: East China Market: In the previous trading session, aluminium futures on the SHFE did not show any sharp fluctuations compared to the previous day, but market sentiment was subdued. Suppliers continued to offer lower spot premiums, and quotes were revised downwards again yesterday, but trading activity did not intensify. Spot prices for SMM A00 aluminium ingots were at a premium of RMB 160-180 per tonne.

Central China Market: The price spread between Henan and Shanghai, as well as premiums in both regions, remained high. Combined with rising aluminium futures prices on the SHFE, trading sentiment in Central China became increasingly subdued. Suppliers sold aggressively amid the price collapse, showed little desire to hold prices, and preferred to quickly sell large volumes at lower prices.

Central China aluminium prices opened at a discount of 30 yuan per tonne to the November SHFE aluminium contract, with actual market transactions ultimately converging at a discount of 10-50 yuan per tonne to the November SHFE aluminium contract. South China Market: Aluminium prices rose slightly yesterday, and the spot market weakened. Although aluminium prices recovered to high levels, the backwardation structure for aluminium on the SHFE narrowed significantly.

However, a significant number of market participants feared that the price spread between futures contracts would continue to narrow and the underlying would weaken further, leading to inventory losses. As a result, instead of holding prices, they accelerated inventory liquidation before the end of the month to raise cash, widening discounts and selling more aggressively, with key prices in the discount-to-parity range and ample discounted supply circulating in the market.

Downstream buyers remained on the sidelines, maintaining just-in-time purchases. They had no intention of accepting a halfway basis; they merely sought lower prices to purchase at a discount with delivery. Overall, demand was insufficient, and transactions were weak.

Aluminium scrap: In the previous SMM A00 trading session, aluminium closed at RMB 23,930 per tonne, up RMB 40 per tonne from the previous trading day, while aluminium scrap prices remained generally stable. Regarding the price differential between A00 aluminium and aluminium scrap, on October 28, the differential between A00 aluminium and unpainted mixed aluminium extrusion scrap in Foshan was about RMB 2,265 per tonne, while the differential between A00 aluminium and shredded aluminium tensile scrap was about RMB 766 per tonne.

On the supply side, tax audits in central China continued to intensify, making qualified invoiced aluminium scrap increasingly scarce, and enterprises with invoices demonstrated a strong desire to hold down prices. Competition between companies was intense, and 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 supply replenishment from Southeast Asia continued to grow.

On the other hand, the deepening of the peak season somewhat stimulated gradual demand for replenishment of imported scrap stocks. In the short term, the aluminium scrap market is expected to remain resilient, with limited downside potential. On the supply side, the scale and intensity of tax audits remains a key variable, and the shortage of properly invoiced goods is unlikely to improve. Invoice tax rates at some industry leaders have increased further, and competition among companies for compliant supply has intensified.

On the demand side, scrap processing companies continue to demonstrate robust demand, but pressure from finished product inventories is also curbing enthusiasm for raw material purchases. Furthermore, the price gap between A00 aluminium and aluminium scrap has recently narrowed to historic lows, weakening the price advantage of aluminium scrap, and the issue of replacing primary aluminium has once again become relevant. Going forward, attention should be paid to the scale of tax audits, changes in invoicing quotas in different regions, and the pace of processing plants.

Secondary aluminium alloys: The ADC12 market remained generally stable during the previous trading session, with SMM ADC12 prices unchanged from the previous trading day. On the one hand, raw material prices such as aluminium scrap remained relatively stable, and coupled with the limited supply of compliant aluminium scrap, ADC12 production costs remained elevated, limiting price declines.

On the other hand, although production and sales recovered somewhat in the second half of the month, improvements in final demand remained insufficient, and market purchasing remained largely on a rolling basis, limiting further price increases. Currently, ADC12 prices are under pressure from both costs and demand, so sharp fluctuations are unlikely in the short term. The market is expected to move sideways, with attention being paid to changes in raw material prices and a recovery in demand in the downstream industries.

Overall Outlook: From a macroeconomic perspective, the Fed's pause in rate hikes led to a short-term weakening of the US dollar, and marginal interest rate pressure on base metals valuations has temporarily eased. However, market expectations for further rate hikes remain high, and the sustainability of the positive effect is questionable.

In terms of fundamentals, the resumption of overseas production and expectations for new capacity are creating a bearish backdrop for futures sentiment, but continued inventory drawdowns in China are providing downward support for aluminium prices. Based on futures signals, the aluminium recovery momentum on the SHFE has weakened due to active long-selling, while bearish positions have increased on the LME.

The pace of the technical rebound has slowed, and the market is leaning toward sideways movement. Overall, aluminium prices have support from below in the short term, but upside momentum is insufficient, and price consolidation in the range is expected.

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.