Aluminium inventory dips after two months; SMM projects slow output growth in 2018

China’s refined aluminium inventory saw a first dip last week to 2.28 million tonnes since the start of February. According to SMM data, China's aluminium inventory including SHFE warrants dropped further to 2.26 million tonnes as of Monday March 26. This is down from 2.28 million tonnes on Thursday March 22 and from 2.29 million tonnes on Monday March 19.

According to SMM senior analyst Liu Xiaolei, Pressure on aluminium prices will emerge if China’s inventory grew over 2.4 million tonnes. In the Copper and Aluminium Summit in Shanghai on Friday March 23, he projected a turning point for the increasing inventory to appear in late March based on positive downstream demand outlook.

Liu expected new aluminium capacity and restarted production to put pressure in the aluminium prices.  He added that an obvious destocking can only be possible, when consumption exceeds expectation.

Average A00 Aluminum Ingot prices dropped to RMB 13,540 per tonne today.  The prices are expected to range within RMB 13,520 to RMB 13,560 per tonne and spot discounts are expected to settle at RMB 100 to 60 per tonne. Primary ingot prices registered a drop of RMB 10 to 60 per tonne across all domestic markets. 

SMM expects about 4.01 million tonnes of new aluminium capacity to come online in 2018.  By the end of 2020, he expects China would have over 50 million tonnes of refined aluminium capacity.

He however added that China's aluminium output would grow at a slower pace in 2018 given supply-side reform and restricted production during the heating season. He projected an output growth rate of 4.4% in 2018 in comparison to 13.8% in 2017. The consumption rate is also expected to drop to 6.7% in 2018 in comparison to 9.1% and 7.9% in 2017 and 2016 respectively.

Liu also expects the weakening ratio of SHFE/LME aluminium to encourage more exports of aluminium products in 2018. Given the new tariff policies by the U.S. the export is expected to shift towards other destinations.

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