The substantial increase in LME inventory is due to the early delivery of Rusal to LME warehouses by some large traders in order to avoid the risk of LME 's ban on Rusal. The main contract price of Shanghai Aluminum Co., Ltd. has been operating within the range of 17,700 - 19,200 yuan/ton since late July. From the perspective of supply and demand fundamentals of aluminum market, there has been no force to break the current balance.

Supply side: repair of domestic(China) operation capacity 

On the domestic supply side, in August and September this year, Sichuan and Yunnan successively appeared large-scale production reduction of electrolytic aluminum enterprises. At present, the production reduction capacity in Sichuan has recovered by more than 50%, and it is difficult to resume production in the short term for the local production capacity reduced by 20% in Yunnan. It is estimated that the domestic electrolytic aluminum operation capacity will be repaired to around 40.78 million tons by the end of October and around 41.3 million tons by the end of the year, which is still a certain gap from the peak value of 41.4 million tons in July.

In terms of overseas supply, according to statistics, since August, due to strike and energy pressure, electrolytic aluminum plants in Europe have continued to reduce production. At present, the total production reduction capacity in Europe and North America is about 1.668 million tons, including 1.364 million tons in Europe, accounting for 13.18% of the total built capacity in Europe; The production reduction in North America is about 304,000 tons, accounting for 6.2% of the completed electrolytic aluminum production capacity in North America. Energy issues will remain an important factor affecting the release of overseas production capacity. In addition, on October 7, LME officially launched a market discussion document on whether to take sanctions against Russia metals in 2023 to prohibit its new supply from flowing into the market. If Europe and the United States stop importing Russian aluminum, it will produce good results for local aluminum smelters, support the strength of LME, and also produce certain benefits for the export of China aluminum materials.

Demand side: overseas recession drags down exports 

In terms of domestic demand, the operating rate of aluminum downstream has weakened recently. Data show, As of October 27, The week domestic aluminum downstream processing leading enterprises operating rate fell to 66.0%. According to the sub-plate, the operating rate of aluminum plate, strip and foil plate continues to decline, it is difficult for enterprises in Henan and other places to import and export goods, and the raw material inventory of some enterprises has been at a very low level, resulting in the operating rate falling again. Aluminum alloy and cable plate transportation costs increase, production temporarily can hold steady. In addition, aluminum plate feedback orders began to weaken, subsequent operating rate upward or will be under pressure. Aluminum plate operating rate in photovoltaic frame and other orders led by a small increase, aluminum enterprises recently stepped up stocking to prevent raw material shortages.

In terms of exports, the latest data from the General Administration of Customs shows that in September 2022, China exported 495,900 tons of unwrought aluminum and aluminum materials, with a year-on-year growth of 0.8%;   From January to September, the accumulated export was 5.1970 million tons, with a year-on-year growth of 27.8%, 3.7% lower than that in January-August, continuing the downward trend.   In the first half of the year, domestic aluminum exports rose sharply year-on-year, benefiting from the boost of overseas demand on the one hand, and on the other hand, due to the low ratio of Shanghai Aluminum and Lunaluminum, export profit space opened.   The latest data showed that the United States Markit manufacturing PMI in October was 49.9, a new low since June 2020, falling below the withering line for the first time in two years, and the risk of contraction of the U.S. economy intensified in the fourth quarter.   Eurozone manufacturing PMI initial value in October fell to 46.6, a 29-month low, the euro zone recession may be more difficult to avoid.   In the global economic recession is expected, overseas demand or will gradually weaken, and then superimposed inside and outside the ratio gradually picked up, aluminum exports decline trend or will be difficult to avoid.

Inventory side: domestic low, overseas rebound

In terms of domestic inventory, data show that as of October 27, the domestic social inventory of electrolytic aluminum was 621,000 tons, which was basically the same as the inventory at the end of September and continued to remain at a low level during the year. At present, the arrival volume and demand in the spot market of aluminum ingots are both weak. The arrival volume is relatively small. The operating rate of downstream processing plants in Henan has decreased, and some downstream feedback in East China is about to enter the traditional off-season.

Overseas inventories, the number of aluminum ingots in LME warehouses has surged since the October 7 LME release. As of October 28, LME aluminum inventories rose from 327,700 tons to 587,400 tons, an increase of nearly 80%. The sharp increase in LME inventories was due to the fact that some large traders handed over their Rusal to the LME warehouse in advance to avoid the risk of LME's ban on Rusal. On the one hand, it reflects that the limitation of Rusal in the short term may still be an important concern affecting the market. On the other hand, the explicit global hidden inventory indicates that there may not be a shortage of aluminum in the market.

On the whole, the fundamentals of the aluminum market have not changed much recently, and "external forces" are needed to break the current balance. In the short term, the LME sanctions on Rusal will become an important factor affecting the direction of aluminum prices; in the long run, the global economic recession will be the dominant factor dragging down aluminum prices, while energy costs will always be an important support for aluminum prices.