Rate hike expectations disrupt, coupled with post-holiday inventory buildup; Aluminium prices consolidate on a subdued note in the short term

The most-traded SHFE aluminium contract opened at RMB 23,255per tonne in the night session on Oct 8, hit a high of RMB 23,365 per tonne and a low of RMB 23,195 per tonne, and closed at RMB 23,220 per tonne, down RMB 165 per tonne or 0.71   from the previous close. Futures quickly dipped and weakened, with prices falling below all cyclical moving averages of 5/10/20/40/60. All moving averages turned downward to form resistance, highlighting a bearish pattern. Trading volume during the session was 74,115 lots, with open interest at 269,000 lots, down 819 lots, mainly driven by bulls cutting positions and exiting. On the technical front, the 4-hour MACD death cross continued, with DIFF well below DEA.

Green bars expanded significantly, and bearish momentum continued to be released. The LME aluminium 3M contract opened at USD 3,125.0 per tonne on Oct 8, hit a high of USD 3,156.0 per tonne and a low of USD 3,041.5 per tonne, and closed at USD 3,042.0 per tonne, down USD 83.0 per tonne or 2.66 per cent from the previous close. Futures plunged sharply, with prices falling below all cyclical moving averages of 5/10/20/40/60. All moving averages exerted downward pressure, further strengthening the bearish trend. Trading volume during the session was 29,262 lots, with open interest at 567,000 lots, down 339 lots, mainly driven by bulls cutting positions and exiting. On the technical front, the daily MACD death cross continued, with DIFF below DEA. Green bars kept expanding, and bearish momentum was released in a concentrated manner.

St. Louis Fed President Musalem said the US Fed needs to raise interest rates again to push inflation back to the 2 per cent target. He said monetary policy needs to be tightened further to achieve the inflation target in a "timely" manner. Musalem said if "timely" means about 18 months, rates may need to be raised further at appropriate times over the next 6 to 9 months. Data released by the US Labor Department on Thursday showed that initial jobless claims in the US fell by 2,000 WoW to a seasonally adjusted 197,000 in the week ended Oct 3, below market expectations of 200,000, and remained near a 57-year low for the fourth consecutive week. Meanwhile, September nonfarm payrolls released last Friday increased by only 29,000, far below market expectations, indicating a clear cooling in hiring demand. According to CME "FedWatch": The probability of the Fed keeping rates unchanged in October is 82.3 per cent, and the probability of a cumulative 25bp hike is 17.7 per cent. The probability of the Fed keeping rates unchanged in December is 18.7 per cent, the probability of a cumulative 25bp hike is 67.6 per cent, and the probability of a cumulative 50bp hike is 13.7 per cent.

According to SMM statistics, total aluminium production outside China fell 2.4 per cent YoY in September 2026, mainly due to lower YoY load at aluminium plants in the Middle East. Daily average production outside China rebounded 2.2 per cent MoM, with production resumptions in the Middle East and production ramp-up at new projects in Indonesia, Vietnam, and India continuing to drive the rebound in daily average production. Benefiting from accelerated production resumptions at Middle Eastern aluminium smelters, total operating capacity of aluminium in the Middle East has recovered to around 4.5-5 million tonnes, and total operating capacity of aluminium outside China has recovered to around 29.65 million tonnes. Looking ahead to October 2026, production resumptions in the Middle East are expected to continue advancing. New projects in Indonesia and India that started production earlier are expected to continue ramping up production, but some projects originally planned to start production in Q4 have experienced varying degrees of delays, and production growth is expected to gradually slow down. On the inventory side, as of October 8, SMM data showed aluminium inventory in the Shanghai Bonded Zone at 89,600 tonnes and Guangdong Bonded Zone inventory at 25,000 tonnes, totalling 114,600 tonnes, down 3,500 tonnes from September 30. Inventory of 6063 aluminium billet in major domestic consumption areas stood at 187,500 tonnes, up 38,000 tonnes from September 30.

Primary aluminium market: On October 8, SHFE aluminium 2610 contract futures prices trended lower compared with the same period before the holiday, and market purchasing sentiment was moderate. However, due to the inventory buildup after the holiday, traders found it difficult to hold firm on higher premiums. SMM A00 aluminium ingot transactions were mainly concluded at premiums of 30-50 RMB per tonne. On the first day of work resumption after the National Day holiday, trading activity in the central China market was sluggish, with traders making only sporadic small-volume purchases, while downstream processing enterprises showed some restocking interest at lower prices, modestly supporting premiums. Early on, affected by the decline in futures prices, market quotes were on the high side, but as trading sentiment turned cold, quotes gradually weakened. Ultimately, actual transaction prices in the central China market were concentrated in the range of discounts of 30-60 RMB per tonne against the SHFE aluminium October contract. In the South China market, aluminium prices fell sharply on October 8, and the spot market was weak. Arrivals and inventory buildup during the National Day holiday were relatively limited, and sellers generally held prices firm in early trading. However, as the backwardation structure of SHFE aluminium widened and the actual spot-futures price spread remained high, firm offers drew little response, prompting sellers to gradually shift toward lowering prices and selling more to realise cash, increasing the availability of discounted spot cargoes. After the holiday, absolute prices were low, and restocking demand provided some support to the market. However, overall concerns about the high spot-futures price spread persisted, and aside from purchases to fulfil delivery obligations, there was almost no flexibility, with weak demand from intermediate segments and poor transaction activity. Spot transaction prices were concentrated at premiums of 230-270 RMB per tonne against the SHFE aluminium 2610 contract.

Aluminium scrap: On October 8, SMM A00 aluminium prices closed at RMB 23,760 per tonne, down RMB 270 per tonne from the previous trading day, and the aluminium scrap market generally followed with declines of 100-200 RMB per tonne. In terms of price differences, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,492 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 1,326 per tonne. After the National Day holiday, the aluminium scrap market continued to hold up well. On the supply side, aluminium scrap yards have all briefly resumed operations, and the release of cargoes has increased somewhat. However, recycling policies continue to constrain liquidity, and the tight supply of invoices is unlikely to ease in the short term. Tight supply will continue to provide support for prices. Demand side, as the traditional peak consumption season for cast aluminium alloy gradually kicks off, enterprises are accelerating their order-taking and procurement pace. Under the tight supply-demand situation for aluminium tense scrap, price support is expected to strengthen further. Demand for wrought aluminium alloy remains moderate, with relatively ample in-factory inventory. However, aluminium scrap supply is expected to decline under tax inspection restrictions, gradually opening an upward price channel. That said, the release of peak-season demand remains relatively mild for now, and actual post-holiday order fulfillment still needs close tracking.

Secondary aluminium alloy: On October 8, ADC12 market quotes were broadly weak. SMM ADC12 price fell by RMB 100 per tonne from the last trading day before the holiday to RMB 24,400 per tonne. The price weakness was mainly driven by the post-holiday pullback in aluminium prices and futures, along with rising sentiment to follow the market lower. Some enterprises chose to adjust quotes in line with market conditions. However, the decline in aluminium scrap raw material prices was relatively limited. Against the backdrop of tight compliant raw material supply, the cost side still provided some support to spot prices, so some enterprises kept their quotes unchanged for the time being. From the demand side, downstream procurement largely resumed after the holiday, but overall performance was relatively stable, with limited improvement in market transactions. Overall, ADC12 prices are expected to continue moving sideways in the short term. Futures and aluminium price trends will cause some disturbance to market sentiment, but cost support still limits further downside. Attention should be paid to the recovery of downstream demand after the holiday and changes in aluminium scrap raw material prices.

Comprehensive outlook: On the macro front, high US Treasury yields and a strong US dollar continue to weigh on the valuation of the nonferrous metals sector, while fluctuating expectations for US Fed interest rate hikes this year repeatedly disturb market sentiment. On the industry front, China's aluminium ingot inventory has built up after the holiday, weakening price support. Coupled with weaker liquid aluminium demand and a rebound in casting ingot output, as well as adjustments in capital open interest around the long holiday, the tug-of-war between longs and shorts in the market has clearly intensified. Overall, short-term aluminium prices face intertwined bullish and bearish factors and are expected to consolidate on a weak note.

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.