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Outlook for Aluminum Prices from Both Bulls and Bears
Recently, domestic Shanghai aluminum prices have been locked in a tight trading range around the RMB 19,000 per tonne level. Based on position data as of Monday’s close this week, the major long and short positions remain evenly matched, with no significant reduction in either side’s holdings. Next, let’s examine the key rationales behind the bullish and bearish views.
I. Low Inventories Continue to Support Aluminum Prices
For bulls, the most significant fundamental positive is the continued decline in social aluminum inventories. On November 21, SMM reported domestic electrolytic aluminum social stocks at 530,000 tonnes, down 17,000 tonnes from the previous Thursday and 82,000 tonnes month-on-month, with a year-on-year drop of 497,000 tonnes. Electrolytic aluminum ingot inventories have now hit new record lows, standing at 530,000 tonnes—the lowest level on record for this time of year and also the lowest since 2022. By region, Wuxi has led the inventory drawdown, primarily due to persistently low inbound shipments; according to market sources, following the resumption of shipments from Gongyi, some of Wuxi’s incoming volumes have been diverted, keeping overall inventory trends downward. In terms of shipments, Wuxi’s weekly outbound volume remains around 45,000 tonnes, slightly lower week-on-week but still near the historical average; Gongyi’s inventory increased marginally by 1,000 tonnes from the previous Thursday, holding steady at about 62,000 tonnes, though additional shipments en route are expected to arrive in the coming days, so future inventory movements will be closely watched; in Foshan, aluminum billets have begun arriving steadily, yet ingot inventories remain low, down 6,000 tonnes week-on-week from the previous Thursday.
Overall, although some areas in Northwest China have lifted lockdowns and transportation is gradually resuming, leading to expectations of a concentrated arrival of aluminum ingots and aluminum billets, the anticipated build-up in inventories has yet to materialize; instead, inventories have declined, which will provide strong support for aluminum prices.
II. Slow Recovery in Demand Weighs on Aluminum Prices
For bears, demand-side performance has been a key drag on aluminum prices this year. Both macroeconomic data and micro-level downstream capacity utilization rates have generally fallen short of expectations. In particular, with the real estate sector in a downturn and further compounded by temporary COVID-19-related disruptions, the drag on downstream aluminum consumption has been pronounced. According to SMM survey data, as of November 17, the operating rate among China’s leading downstream aluminum processing firms stood at 67.1%. By segment, the aluminum foil sector saw a slight decline in its weekly operating rate, primarily due to the onset of the traditional low-demand season, weaker market demand, and reduced output. By contrast, operating rates in other segments remained largely stable for the week; recent firm aluminum prices have boosted downstream pickup activity for aluminum plate and strip, while downstream players in the aluminum wire and cable and aluminum extrusion sectors have adopted a more cautious stance. Insufficient demand in both primary and recycled alloy segments continues to cap any upward move in operating rates, leaving them broadly steady but trending lower in the near term.
III. What are the influencing factors for the future market?
Breaking the current stalemate will require new external forces. From a fundamental perspective on Shanghai aluminum, bullish market participants are pinning their hopes on supply-side production cuts and rising production costs. On the supply side, we have already seen output reductions this year in Sichuan and Yunnan due to hydropower shortages, as well as in Henan owing to losses; additional potential sources of supply restraint include production curbs imposed on primary aluminum smelters during heating seasons and other policy-driven shutdowns, as well as unplanned outages caused by sudden accidents or incidents. According to SMM data, as of early November, China’s total commissioned primary aluminum capacity stood at 45.16 million tonnes, with operating capacity at 40.34 million tonnes, translating into a national capacity utilization rate of roughly 89.4%. In the short term, however, the likelihood of large-scale production cuts remains low. Another key factor is the evolution of cost dynamics: currently, major domestic alumina-producing regions are all experiencing varying degrees of loss, and with the onset of the northern heating season, pressure on alumina producers to cut output has intensified. Should such cuts prove substantial, alumina prices could halt their decline and rebound, thereby pushing up primary aluminum production costs.
Bears are pinning their hopes on two key factors in the near-term outlook: an unexpectedly large build in aluminum inventories and a decline in production costs. As discussed earlier, logistical and transportation constraints have delayed the anticipated build in social aluminum inventories; should this build materialize—or even exceed expectations—it would become a major catalyst for bearish pressure on prices. In addition, coal prices, a significant component of electrolytic aluminum production costs, have remained relatively firm. If coal prices were to fall more sharply than expected, it would weigh on overall aluminum production costs, mirroring the synchronized price decline seen in the fourth quarter of last year.
Overall, in addition to the fundamental factors discussed above, macroeconomic influences should also not be overlooked. In particular, China will convene its annual Economic Work Conference in December to map out next year’s economic agenda, and market sentiment is broadly optimistic about domestic economic growth in 2024. Meanwhile, the U.S. Federal Reserve is set to deliver its final rate hike of the year, with widespread expectation that the pace of tightening will subsequently slow. The ultimate direction that aluminum prices will take remains to be seen—let’s wait and see! (Zhongyuan Futures)
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