Outlook for aluminum prices this week

As the end of Chinese Lantern Festival last week, aluminum processing enterprises successively returned to business, and started ordering replacement metal stocks. That caused metal prices to rise. The aluminum price of the dominant contract of SHFE peaked at RMB14000/ton from the lowest price of RMB13770/ton on Monday. The largest price rise was as much as 5.88% last week. Although the price was cut on Friday, the price was still more than RMB14000/ton. While LME aluminum price bounced back with the domestic aluminum price rebound, but its rise is lower than domestic aluminum, and USD 1900/ton is not stable.

At present, from the supply side: as the chart shown below, the inventory of domestic spot market still increased and it rose by 100kt until yesterday. In addition, according to my statistics, the inventory of the factories and stations in Xinjiang is around 348kt, 27kt lower than last week. Although the inventory in Xinjiang falls, recent heavy snow falls will slow deliveries of that metal to market. It is anticipated that the dominant inventory of spot aluminum will rise, and the pressure to aluminum’s price will show slowly.

Unit：kt

Demand side: the pre-suspended aluminum bar factories restarted after Lantern Festival. Those aluminum factories are mostly small (50kt below). Let’s take northwest district as an example：According to my research, the capacity of aluminum bar factories in northwest district is around 2520kt, while the halt production capacity during Spring Festival is around 860kt, and those halt capacity resumed production after Lantern Festival, with the resumed ratio of 34.13% of the general capacity. While for the aluminum factories in the whole China, the resumed ratio is just 27%. With the resumption of that capacity, the demand of aluminum will increase, and it will support the aluminum price further.

News side: Starting February 15, a new wave of environmental inspections has begun, working in Beijing, Tianjin, Shanxi, Shandong, Henan, etc. The environmental protection work has begun. Manufacturing enterprises of carbon, petroleum coke , etc received the notification of limited production or suspended production in those above areas. Only the carbon enterprises in Shandong closed 60% capacity last week. Influenced by that notification, the price rise of the raw material of electrolytic aluminum cannot be ruled out, it will keep the smelting cost at a higher level, and the higher cost will also support the aluminum price. From the international perspective, the American economy continues recovering, President Trump promised to invest one trillion USD in the infrastructure construction such as airport, highway, etc. in the next 10 years. Although the proposal was not sent to Congress, it will be enough to improve the expectation of metal demand, but at the same time, the news of raising interest rates is frequently given out by the Fed officials, represented by Yellen. The strong dollar may stop the rise of metal prices, influenced by that, there are still some uncertainties of LME aluminum’s price.

In conclusion, the aluminum enterprises have resumed trading after Lantern Festival. Although the inventories still increase slowly, the influence of the news of price drop is limited and the increase of demand will lead the speculative fund. It is anticipated that the price of aluminum will continue to be strong in the next week. The dominant contract of SHFE will be stronger at RMB13900-14600 per ton; LME will maintain US1900 per ton in the first-line consolidation.