SHFE aluminum prices fall to 3-year low; near-term outlook still gloomy

Singapore — The most actively traded contract of primary aluminum on the Shanghai Futures Exchange fell below Yuan 13,000/mt ($1,861/mt) this week, slumping to the lowest since January 10, 2017. Market sources are concerned that primary aluminum prices might continue to hover at prevailing lows in the short term due to high inventory and slow recovery of demand from downstream consumer sectors.

SHFE's most active 2005 aluminum futures contracts closed at Yuan 12,870/mt ($1,844/mt) on Thursday, down Yuan 65/mt or 0.5% on the day, SHFE data showed. The contract had lost a total of Yuan 1,090/mt, or 7.8%, since January 23.

"It seems that the nonferrous metals sector will remain depressed in the short term resulting from the spread of COVID-19, or the coronavirus," a source with a major Chinese aluminum producer said. China's stimulus package on infrastructure investment and the expected stimulus polices to be launched by countries across the globe might be the "wild card" for the aluminum industry, he added.

China's aluminum stocks rose for the ninth straight week to 479,472 mt -- the highest level since May 31, 2019 -- across warehouses in Shanghai, Guangdong, Zhejiang, Jiangsu, Shandong, Tianjin, Henan, Liaoning and Chongqing, up 40,385 mt from a week ago. Inventories might continue to build in the near term due to the slow recovery in demand, market sources said.

The shortage of orders was the main reason for the slow growth in the operating rates of aluminum products makers -- the main consumer of primary aluminum, several market sources said.

It was troubling that the infrastructure construction sector has not been performing as expected so far, and that consumption from downstream sectors had yet to recover, a southern China-based primary aluminum trader said.

The operating rate of copper and aluminum products processors recovered to 59% as of February 26, up 12.9 percentage points compared with February 19, according to a survey conducted by China Nonferrous Metals Industry Association. On the same day, the operating rates of aluminum smelters reached 87.6%.