US Fed Rate Hike Weighs on Nonferrous Metals as Aluminium Destocking Continues

The US Federal Reserve (Fed) has raised interest rates by 25 basis points to 3.75-4.00% as expected, marking its first hike since July 2023. The decision was unanimous among Fed officials.

This move is likely to weigh on the valuation of dollar-denominated nonferrous metals, including aluminium. With tensions in the Strait of Hormuz persisting and regional shipping security concerns, energy transport and risk premiums are expected to rise.

In terms of fundamentals, China's weekly aluminium production has remained stable, while some downstream sectors have cut production, reducing liquid aluminium purchases. Meanwhile, Alba's operating capacity has recovered to around 1.3 million tonnes, further boosting ex-China operating capacity.

The upcoming holiday is expected to support downstream stockpiling demand, which may lead to continued aluminium ingot destocking. As of Thursday this week, China's aluminium ingot social inventory fell by 63,000 tonnes W-o-W and by 43,000 tonnes from Monday.