Short-Term Geopolitical Premium Tends to Converge; Domestic-Overseas Divergence Pattern to Continue in the Near Term [SMM Aluminum Price Weekly Review]

SMM News, May 28:

Macro perspective: Glimmers of a Middle East ceasefire coexist with setbacks, while expectations for US Fed interest rate hikes heat up

Outside China, the US-Iran framework agreement is reportedly 95% finalized, with both sides reaching preliminary consensus on a 60-day temporary ceasefire and the restoration of navigation through the Strait of Hormuz. If signed, shipping through the strait would resume within 30 days. However, US forces subsequently launched strikes on Iran, with Iran condemning the US for violating the ceasefire agreement. In addition, market expectations for US Fed interest rate hikes rose this week.

Fundamentals: The divergence between domestic and overseas markets continued, with destocking emerging in China but at a modest pace

Outside China, supply disruptions in the Middle East persisted, and LME inventory continued to decline. As of this Wednesday, LME inventory stood at 338,000 mt, down about 1,500 mt WoW. The LME aluminum Cash-3M premiums was $74.42/mt, up about $19.86/mt WoW, with the high premium structure maintained. Japan's Q3 spot premiums rose, and the rigid supply gap outside China provided continued support for LME aluminum. In China, as of this Thursday, SMM aluminum social inventory stood at approximately 1.401 million mt, down 11,000 mt from last Thursday. Destocking has begun to emerge, but inventory remains at a historical high for the same period.

Overall,

if the US-Iran ceasefire agreement materializes, it would significantly ease concerns over Middle East supply, but recurring military frictions leave uncertainty over the peace outlook, with short-term geopolitical premiums tending to converge but not fully dissipated. The rigid supply gap outside China supports a strong LME aluminum pattern, while domestic destocking has just begun but with weak momentum, limiting the upward elasticity of SHFE aluminum. The divergence between domestic and overseas markets is expected to continue in the short term. Going forward, key focuses include whether domestic destocking accelerates, whether the US-Iran agreement is formally signed, further clarity on the US Fed's interest rate path, and whether China is further regulating aluminum capacity operations. The most-traded SHFE aluminum contract is expected to trade within 24,100-24,800 yuan/mt next week, while LME aluminum is expected to trade within $3,550-3,700/mt.

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