Fed Hike Presses Metals, Ingot Destocking Eases Supply

The Federal Reserve implemented a 25 basis point interest rate hike, raising the target range to 3.75 percent to 4.00 percent. This decision, the first since July 2023, was unanimous and included a dot plot projecting one additional hike in 2026. The move extended the duration of high interest rates, triggering heavy selling in US Treasuries. Consequently, the US dollar and real yields rose, which directly reduced the valuation of dollar-denominated nonferrous metals.

Geopolitical tensions in the Strait of Hormuz added risk premiums to energy transport. Iran claimed "smart control" of the strait, forcing the postponement of a regional shipping security meeting in Oman. These macro factors created a mixed sentiment environment. However, fundamental supply dynamics in China offered a counterbalance. Weekly aluminum production remained stable, but downstream sectors cut production, reducing liquid aluminum purchases by 0.02 percentage points and shifting market focus to physical inventory levels.

Ingot Inventories Decline Amid Supply Disruptions

Aluminum ingot shipments from Xinjiang faced disruptions, which accelerated destocking efforts. As of Thursday, China's social inventory for aluminum ingots fell by 63,000 tonnes week-over-week. The drop was also 43,000 tonnes higher than levels seen on Monday. Aluminum billet inventory showed a smaller decline, edging down by 500 tonnes week-over-week. Downstream stockpiling ahead of the upcoming holiday contributed to this reduction in physical stockpiles.

Outside China, Alba’s operating capacity recovered to approximately 1.3 million tonnes. This increase lifted ex-China operating capacity, adding to the global supply base. Despite this, the pace of new project commissioning is expected to slow in coming months. Some projects have been delayed, moderating the rate of capacity additions. The combination of delayed new supply and existing destocking trends supports the near-term price outlook.

Price Expectations Reflect Mixed Macro Signals

The SHFE aluminum contract is projected to trade between RMB 23,800 and RMB 24,500 per tonne next week. LME aluminum is expected to range from USD 3,200 to USD 3,350 per tonne. The LME aluminum cash price recently fell to $3,302.50, while the Asian reference price climbed nearly 1 percent. These ranges reflect the tug-of-war between the bearish impact of higher US interest rates and the bullish support from reduced Chinese inventories.

Market participants must monitor downstream operating trends in China closely. The sustainability of the destocking trend depends on whether production cuts in downstream sectors continue to reduce liquid aluminum purchases. If operating rates in key sectors remain weak, inventory levels may continue to fall. This dynamic will be crucial in determining whether fundamental support can offset the macro headwinds posed by the Fed's policy stance and geopolitical instability.

Source Context And Data Attribution

The data and analysis presented here originate from SMM, as published by AL Circle. The source material confirms that core subject and data remain unmodified in the reporting. This attribution ensures the reliability of the inventory figures and production capacity estimates discussed. Investors should refer to the original SMM reports for detailed breakdowns of regional supply and demand metrics.