Supply Tightening Coupled With Macro Tailwinds Keeps Aluminum Prices Firmly at High Levels [SMM Aluminum Morning Meeting Summary]

3.31 SMM Morning Meeting Summary

Futures: In the night session on March 30, the SHFE aluminum 2605 contract opened at 24,585 yuan/mt, hit an intraday high of 24,765 yuan/mt and a low of 24,585 yuan/mt, and finally closed at 24,745 yuan/mt, up 20 yuan/mt from the previous close, or 0.08%. Technical analysis showed that the short-term moving averages (SMA5: 24,454.23, SMA10: 24,217.29) turned upward, with prices holding firmly above the 5-day and 10-day moving averages, indicating a continuation of the short-term bullish trend. The price spread between the medium-term moving averages (SMA20: 24,215.08, SMA40: 24,300.70, SMA60: 24,275.03) and the short-term moving averages narrowed, suggesting that bearish momentum had eased. On the 4-hour MACD chart, the red histogram continued to expand (DIFF=-73.09, DEA=-173.94, STICK=201.69). After the golden cross between DIFF and DEA, the gap widened, indicating further exhaustion of bearish momentum and continued strengthening of bullish momentum. In terms of open interest, night session open interest was about 265,000 lots, an increase of 1,561 lots from the previous session. On March 30, LME aluminum opened at $3,400.0/mt, hit an intraday high of $3,492.0/mt and a low of $3,375.0/mt, and finally closed at $3,445.0/mt, up 4.89% from the previous day. In terms of open interest, night session open interest was about 688,000 lots, down 730 lots from the previous session.

Macro Front: Fed Chairman Powell said that US monetary policy was currently in an appropriate position, and that the US Fed would continue to wait and see before assessing the long-term impact of the Middle East conflict on the economy and inflation. He also noted that it was still "too early to say," and that geopolitical risks made the outlook highly uncertain. Evercore's Krishna Guha said that Powell's steady tone, combined with the market's belated attention to growth risks from higher oil prices, was driving a shift in rate pricing. The probability of one or more interest rate cuts was far higher than the probability of a rate hike. (Bullish ★)

Fundamentals: On March 29, UAE's EGA aluminum smelter was hit by Iranian missiles and drones, with facilities severely damaged. Damage assessment had been launched, and large-scale production cuts were expected, involving total capacity of about 1.55 million mt. Together with the production cuts initiated earlier this month by Alba and Qatalum, the combined scale of production cuts at the three aluminum smelters was about 2.43 million mt. SMM's China aluminum processing composite PMI for March came in at 65.6%, rebounding strongly above the 50 mark. Overall industry prosperity rebounded significantly, with PMI across all sub-sectors surging sharply, showing clear signs of rapid post-holiday recovery and strong peak-season-driven momentum. On inventory, LME aluminum inventory stood at 418,700 mt on Monday, down 2,200 mt from the previous day, or 0.52%; over the past week, LME aluminum inventory fell by a cumulative 9,000.00 mt, or 2.10%; over the past month, LME aluminum inventory fell by a cumulative 46,900 mt, or 10.07%.

Primary Aluminum Market: In early trading, SHFE aluminum 2604 rose, with its center moving up sharply from the previous day. Affected by the rise in aluminum prices, shipment sentiment increased significantly yesterday. Bullish sentiment was strong, while market premiums did not widen noticeably. Yesterday, mainstream transaction prices were concentrated at discounts of 10 yuan/mt to parity against the SHFE aluminum 04 contract. Yesterday, the shipment sentiment index in the east China market was 3.18, up 0.26 MoM; the purchasing sentiment index was 3.11, down 0.11 MoM. The war caused wild swings in aluminum fundamentals, driving aluminum futures prices sharply higher, and traders in central China remained bullish. However, on the first day of the price increase, downstream processing enterprises maintained strong wait-and-see sentiment, and market trading had not yet fully turned active. Only traders purchased at large discounts, transaction prices remained at low levels throughout and showed a continued downward trend, and the price spread between large and small traders was significant. In the end, market quotations hovered from parity with the central China price to discounts of 40 yuan against the central China price, while the main transaction range was concentrated at discounts of 10-30 yuan against the central China price. Yesterday, the shipment sentiment index in the central China market was 2.72, up 0.07 MoM; the purchasing sentiment index was 2.39, down 0.01 MoM.

Secondary Aluminum Raw Material: The US-Iran war disrupted aluminum fundamentals, and capital sentiment drove spot primary aluminum to surge by 720 yuan/mt yesterday from the previous trading day, with the aluminum scrap market generally following higher actively. Amid current wild swings in aluminum prices, aluminum scrap yards have shown a stronger willingness to hold back cargoes, highlighting the resilience of aluminum scrap prices. On the other hand, affected by tighter regulatory oversight under the “reverse invoicing” policy, tax compliance costs in the aluminum scrap recycling segment rose sharply. In some regions, as operating procedures have not yet been fully streamlined, the supply of actually compliant, invoiced, and available cargoes remained persistently tight, and supply-side elasticity was significantly weakened by policy frictions. The aluminum scrap market is expected to maintain a high-level consolidation pace this week, with the mainstream range for shredded aluminum tense scrap priced based on aluminum content hovering at 19,800-20,500 yuan/mt (ex-tax). Policy constraints on the supply side are unlikely to ease in the short term, and tight compliant cargo supply, coupled with yards holding back cargoes, will continue to underpin prices. Demand side, peak-season recovery fell short of expectations, downstream players showed strong wait-and-see sentiment amid high prices, lacked momentum for large-scale restocking, and just-in-time procurement remained the mainstream. Primary aluminum was still subject to fluctuations under the influence of geopolitical and macro factors, and the overall tug-of-war between sellers and buyers continued, warranting caution over the risk of wild price swings.

Secondary Aluminum Alloy: In futures, yesterday the most-traded aluminum alloy 2605 contract opened at 22,925 yuan/mt and then quickly moved lower, hitting an intraday low of 22,825 yuan/mt. It then stabilized and rebounded, gradually fluctuating higher, with the intraday high reaching 23,025 yuan/mt. As of the midday close, it closed at 22,935 yuan/mt, down 5 yuan/mt from the previous close, a decline of 0.02%. Spot side, yesterday the ADC12 market posted a slight follow-up gain driven by the rebound in aluminum prices. Some enterprises raised quotes by 100–200 yuan/mt due to higher costs, while others chose to keep prices temporarily stable and wait on the sidelines because of their earlier price adjustment pace or weak demand. In terms of transactions, downstream procurement remained mainly driven by just-in-time needs, with no clear improvement in market trading sentiment and insufficient demand-side momentum. ADC12 prices are expected to continue to fluctuate rangebound in the short term. Going forward, close attention should be paid to the impact of developments in the Middle East situation on aluminum prices and the pace of downstream consumption recovery.

Aluminum Market Summary:Currently, global macro and geopolitical risks in the aluminum market continue to escalate, with elevated risk premiums entrenched at high levels, becoming the core variable dominating market sentiment. Fundamentally, on the supply side, the market has heard that the aluminum plant in Bahrain, Middle East, will further cut production, involving 320,000 mt of capacity, while the EGA Taweelah smelter in the UAE was attacked on March 28 and suffered severe damage, making the global supply contraction more pronounced. On the demand side, downstream operating rates rebounded further, while the weekly proportion of liquid aluminum was relatively stable. Entering April, as the peak season deepens, the proportion of liquid aluminum is expected to rebound further. On the inventory side, the center of aluminum prices pulled back last week from the previous period, but wait-and-see sentiment in the market remained strong. Downstream buyers mainly made just-in-time procurement on dips, and aluminum ingot social inventory failed to enter the destocking stage. From late March to early April, attention should be paid to whether aluminum ingot inventory can smoothly enter a destocking cycle under high aluminum prices. Overall, the geopolitical situation in the Middle East remains the core factor affecting the global aluminum market. A series of production cuts and damage incidents at Middle Eastern aluminum plants are expected to provide strong upward momentum for aluminum prices in and outside China. Coupled with support from expectations of gradually released peak-season demand in China, aluminum prices are expected to remain in a high-level adjustment pattern in the short term.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make decisions prudently and should not use this as a substitute for their own independent judgment. Any decisions made by clients are unrelated to SMM.]