US Fed rate hike lands, accelerated aluminium ingot destocking expected to support aluminium prices

Macro perspective:

Outside China, the US Fed raised interest rates by 25 basis points to 3.75per cent-4.00per cent as expected, the first hike since July 2023, with a unanimous FOMC vote. The dot plot showed one more possible rate hike in 2026, extending the period of high interest rates. As a result, US Treasuries saw heavy selling, the US dollar and real yields rose, directly weighing on the valuation of dollar-denominated nonferrous metals.

Geopolitically, tensions in the Strait of Hormuz persisted, with Iran claiming the strait was under its "smart control," and a regional shipping security meeting originally scheduled in Oman was forced to be postponed, raising energy transport and risk premiums. Overall, macro sentiment was mixed.

Fundamentals:

Supply side, this week, China's weekly aluminium production remained stable, while some downstream sectors saw certain production cuts, reducing liquid aluminium purchases and lowering the proportion of liquid aluminium by 0.02 percentage points. Outside China, according to foreign media reports, Alba's operating capacity recovered to around 1.3 million tonnes, further lifting ex-China operating capacity.

Demand side, with the upcoming holiday, downstream stockpiling sentiment improved slightly. Inventory side, aluminium ingot shipments from Xinjiang were disrupted, and combined with downstream stockpiling, aluminium ingot destocking expanded this week. As of Thursday this week, China's aluminium ingot social inventory fell by 63,000 tonnes W-o-W and by 43,000 tonnes from Monday; aluminium billet inventory edged lower mid-week, down 500 tonnes W-o-W. In the short term, the aluminium destocking trend is expected to continue. Attention should be paid to operating rates in certain sectors.

In summary, with the US Fed's first rate hike implemented and the Middle East situation unresolved, macro sentiment remains highly uncertain. On fundamentals, production resumptions in the Middle East continued to accelerate, but some new projects were delayed, and the pace of operating capacity increases is expected to slow in the coming months; the upcoming holiday and downstream stockpiling demand support destocking.

The most-traded SHFE aluminium contract is expected to trade at RMB 23,800-24,500 per tonne next week; LME aluminium is expected to trade at USD 3,200-3,350 per tonnes. Close attention should be paid to downstream operating trends in China.

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.