TIGHTENING IN ALUMINIUM INVENTORY SUGGESTS A POTENTIAL TURNING POINT

Copper is better positioned to benefit from improving aluminium market conditions : Solar energy, grid infrastructure, and electric vehicles, has boosted the metal’s performance 

Ibrahim Patel

Mumbai: This tightening in aluminium inventory suggests a potential turning point for the market. Consumption is gradually improving, contributing to a reduction in inventories, which have dropped 22% over the past three months to 877,950 ton the lowest level since May 8. Aluminium 3-month offer price added $28 on LME increased at $2405 on Thursday intraday, buoyed by the onset of the traditional peak season for demand. SHFE aluminium contract up and closed at RMB 19,465 per ton.

Additionally, China exported 146,708 tons of alumina in July, a 9.6% increase year-on-year, with the majority going to Russia. On the production side, China’s aluminium output surged in July, with a 6% year-on-year increase to 3.68 million metric tons, the highest monthly output since 2002. Global aluminium production also rose by 2.4% year-on-year to 6.194 million tons, with China contributing a significant portion.

While aluminium prices have jumped by 8.95%, driven by a combination of rising input costs, strong demand from key sectors in China, and temporary supply disruptions. Morgan Stanley believes that copper is better positioned to benefit from improving aluminium market conditions and fundamentals. Aluminium’s recent price surge is primarily due to the significant increase to nearly $520 per tonne in alumina, a key ingredient in aluminium production costs. This increase has been passed on to consumers in the form of higher aluminium prices.

Moreover, strong demand for aluminium in China, particularly from sectors such as solar energy, grid infrastructure, and electric vehicles, has further boosted the metal’s performance. However, upside potential is limited by broader concerns about global economic growth, which continue to pressure industrial metals. LME aluminium opening stock came in at 834850 ton. Live warrants and Cancelled warrants settled at 350225 ton and 484625 ton respectively. China's manufacturing data fell to a six-month low last month, highlighting struggles with order volumes.

Despite this, aluminium inventories in Shanghai Futures Exchange warehouses decreased by 1.4% from the previous week. However, aluminium inventories in Shanghai Futures Exchange warehouses dropped by 1.4%, signalling some strength in demand. Despite the price decline, the downside was limited as the aluminium market entered its traditional peak season. Consumption is gradually recovering, and there are signs that inventory reductions may be stabilizing.

The market for aluminium ingot experienced negative market sentiment for four consecutive days, but according to market analysis, the price may increase in the near future. Latest data showed that Chinese producer price deflation worsened in August, reflecting a struggling economy.  One metals trader said, that the US inflation report would be a factor in any interest rate decision at next week's US Federal Reserve meeting. Fed rate cuts would help to boost economic activity and demand and weigh on the US currency, making dollar-priced metals cheaper for holders of currencies.

 (Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.)