Macro Headwinds and High Inventory Continued to Keep SHFE Aluminum Under Pressure at Elevated Levels in the Short Term [SMM Aluminum Morning Meeting Summary]

3.19 SMM Morning Meeting Summary

Futures: In the night session on March 18, the SHFE aluminum 2605 contract opened at 24,800 yuan/mt, hit an intraday high of 24,880 yuan/mt and a low of 24,575 yuan/mt, and finally closed at 24,835 yuan/mt, up 35 yuan/mt from the previous close, or 0.14%. Technically, the MA lines showed short-term weakening but a medium-term bullish pattern. The short-term moving averages, SMA5 (24,882.28) < SMA10 (24,962.47), had turned downward, and the price fell below the 5-day and 10-day moving averages, indicating fading short-term bullish momentum. The medium and long-term moving averages, SMA20 (24,918.83) > SMA40 (24,689.45) > SMA60 (24,490.96), were still diverging upward, and the medium-term bullish trend remained unchanged. On the 4-hour K-line chart, MACD showed a green bar (DIFF: 134.06, DEA: 214.32, STICK: -160.53). The DIFF line crossed below the DEA line to form a death cross, indicating fading short-term bullish momentum and pullback pressure on prices. In terms of open interest, night session open interest was about 304,000 lots, down 3,316 lots from the previous session. On March 18, LME aluminum opened at $3,370.0/mt, hit a high of $3,419.5/mt and a low of $3,336.0/mt, and closed at $3,419.5/mt, up 1.63% from the previous day. Trading volume was 35,563 lots, an increase of 7,893 lots, while open interest was 676,000 lots, down 8,608 lots.

Macro Front: The US Federal Reserve concluded its two-day monetary policy meeting on the 18th and announced that it would keep the target range for the federal funds rate unchanged at 3.5% to 3.75%. Fed Chairman Powell said that from September to December last year, the US Fed cut its policy rate by 0.75 percentage points, bringing it back into a reasonable range within the estimated neutral rate band. (Bearish ★) Powell's term as Fed Chairman will end in May this year. Powell said that if his successor has not been confirmed by the end of his term as Fed Chairman, he will continue to serve as "acting chairman" until the successor is formally confirmed. Since taking office in January 2025, US President Trump has repeatedly pressured the US Fed to cut interest rate, criticizing Fed Chairman Powell's actions as always "too late and wrong," while Powell has repeatedly said he remains firmly committed to preserving the US Fed's independence from political influence. (Neutral)

Fundamentals: Inventory side, on March 18, aluminum ingot inventory in major consumption regions increased by 8,500 mt MoM, with the inventory buildup mainly coming from Guangdong; LME aluminum inventory stood at 436,600 mt, down 3,700 mt from the previous day, or 0.84%; over the past week, LME aluminum inventory fell by a cumulative 13,500 mt, or 3.00%; over the past month, LME aluminum inventory fell by a cumulative 42,900 mt, or 8.95%. SMM learned that South32's revised Q2 2026 offer for Japan MJP CIF premiums was $353/mt.

Primary Aluminum Market:The SHFE aluminum 04 contract fell yesterday. Affected by the decline in aluminum prices, overall purchasing sentiment increased yesterday. Sellers held prices firm, with mainstream quotations and transaction prices in the market concentrated around the average price to +10 yuan/mt yesterday. Yesterday, the shipment sentiment index in east China was 3.17, up 0.05 MoM; the purchasing sentiment index was 3.03, up 0.33 MoM. As SHFE aluminum futures prices pulled back yesterday, buying sentiment in the central China market surged, with strong bullish sentiment and a pronounced willingness to buy the dip. Meanwhile, suppliers tended to hold back from selling and instead turned to purchasing at low prices to profit from the price spread. Only some trading firms engaging in both spot and futures market shipped for profit-taking on premiums, and the overall reluctance to sell was evident. Market quotations ranged from parity with the central China price to a premium of 60 yuan/mt over the central China price, but actual transactions were ultimately concentrated at premiums of 30-40 yuan/mt over the central China price. Yesterday, the shipment sentiment index in the central China market was 2.59, down 0.01 MoM; the purchasing sentiment index was 2.42, up 0.04 MoM.

Secondary Aluminum Raw Material:Yesterday, spot primary aluminum fell 390 yuan/mt from the previous trading day, and the overall aluminum scrap market followed lower. In terms of the price difference between A00 aluminum and aluminum scrap, as of March 18, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 3,450 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,429 yuan/mt. Although it is currently the traditional peak season, affected by a slower-than-expected recovery in end-user orders and wild swings in prices, the production pace at domestic aluminum scrap yards and downstream scrap utilization enterprises remained lukewarm, and actual raw material restocking fell short of expectations. On the policy front, secondary aluminum enterprises lacked clear expectations for the specific implementation rules of "reverse invoicing," and aluminum scrap liquidity will tighten further. Aluminum scrap prices are expected to remain high and hold up well this week, with mainstream quotations for shredded aluminum tense scrap (priced based on aluminum content) running around 20,400-21,000 yuan/mt (excluding tax). Primary aluminum will still be the key driver under the influence of geopolitical developments, while the risk of price fluctuations is intensifying. Supply side, cargo supply is being released steadily, but policy uncertainty continues to suppress circulation efficiency. Demand side, the recovery pace in the peak season is relatively slow, and high prices and wild swings continue to dampen purchase willingness. In the short term, close attention is needed on primary aluminum trends amid geopolitical conflict developments, the recovery in downstream orders, and the implementation of secondary recycling policies, while guarding against the risk of a sharp pullback from high levels.

Secondary Aluminum Alloy:In futures, the most-traded aluminum alloy 2604 contract opened at 23,580 yuan/mt in early trading yesterday. After briefly rising to 23,670 yuan/mt, prices moved lower in waves amid long position reductions, hitting an intraday low of 23,380 yuan/mt. As of the midday close, the latest price stood at 23,425 yuan/mt, down 325 yuan/mt from the previous trading day's settlement price, a decline of 1.37%, and it remained under pressure in the short term. Spot market, the ADC12 market overall trended downward yesterday, with mainstream producers generally cutting quotes by 100 yuan/mt. This round of price adjustments was mainly driven by the pullback in aluminum prices, which weakened cost support. Enterprises accordingly adjusted quotes to align with market changes, though the overall adjustment range remained relatively restrained, indicating a cautious market sentiment. Demand side, downstream enterprises have recently been relatively sensitive to price fluctuations. Although there has been some willingness to restock during the price decline, overall procurement has still mainly been based on immediate needs, with no evident concentrated volume release, and market demand was generally mediocre. In the short term, amid weak aluminum prices, mediocre demand performance, and cost support, ADC12 prices are expected to continue fluctuate rangebound in a narrow range, with both upside and downside room relatively limited.

Aluminum Market Summary:At present, macro and geopolitical risks in the global aluminum market have yet to subside. The Middle East situation remained in a stalemate, threats to navigation through the Strait of Hormuz were unresolved, and aluminum enterprises in the region faced two-way disruption to raw material imports and product exports. The stability of the global aluminum supply chain was under pressure, and risk premiums continued to persist, though earlier in the week some of the risk premium pulled back as sentiment eased and bulls took profits. Influenced by stronger-than-expected US employment and inflation data, market expectations for interest rate cuts were pushed back significantly, with the first rate-cut window this year likely postponed to late Q3 to Q4. A stronger US dollar, coupled with expectations of tighter liquidity, continued to weigh on commodity valuations. Fundamentally, expectations for aluminum production cuts outside China still remained, with Europe, the Middle East, and other regions disrupted by energy and logistics factors, and some capacity entering maintenance cycles, so the logic of global supply contraction remained intact. In China, aluminum operating rates remained stable, supply-side increases were limited, and overall supply stayed steady. After the holiday, demand in China entered a gradual recovery track, the proportion of direct supply of liquid aluminum increased, and the operating rate of downstream processing enterprises rebounded MoM, with the industry gradually returning to a normal production pace. Among them, demand from PV, packaging, and the power grid was strong, providing core support; construction extrusion recovered slowly as work resumed, the recovery pace in traditional sectors remained relatively mild, and overall end-user support gradually strengthened. Continued destocking in LME inventory provided bottom support for LME aluminum, but amid tighter fund liquidity and profit-taking by bulls, upward momentum was insufficient, and the Back structure somewhat weakened. China’s social inventory rose to a high for the same period in nearly five years, the inventory buildup cycle had not ended, and high inventory together with weak spot fundamentals jointly suppressed upward momentum. The divergence between domestic and overseas drivers continued, the SHFE/LME price ratio kept weakening, and SHFE aluminum fell below the key threshold of 25,000 yuan/mt, with short-term trading mainly under pressure at high levels.

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