Macro and Geopolitical Factors Resonated During Labour Day Holiday, LME Outperforms SHFE for Aluminum [SMM Analysis]

SMM May 5 News:

Futures: During China's Labour Day holiday (May 1–5), SHFE aluminum was closed. LME aluminum fluctuated upward. As of 16:00 on May 5, LME aluminum opened at $3,508.5/mt, reaching a high of $3,535/mt, a low of $3,492/mt, and closing at $3,528.5/mt, up 0.87% from the previous trading day and approximately 1.38% higher than the pre-holiday close (April 30).

Macro front: During the holiday, the global macro environment, geopolitical landscape, energy dynamics, ex-China monetary policy, and international trade policy all underwent multiple key shifts simultaneously. These intertwined factors fundamentally reshaped the overall trading atmosphere for ex-China commodities, providing solid external support for international aluminum prices. The aluminum market overall exhibited a pattern of concentrated bullish factors fermenting internationally with ex-China fundamentals holding up well, forming a stark contrast with weak demand and inventory accumulation in China's aluminum market, extending the core pattern where LME outperforms SHFE.

During the holiday, global geopolitical tensions flared again. Confrontations and conflicts in the Middle East continued to escalate, with key shipping lanes through the Strait of Hormuz obstructed. Regional geopolitical uncertainty surged significantly, directly disrupting global energy supply chain stability, driving international oil prices to rise rapidly in the short term, and reigniting global energy inflation expectations.

Monetary policy pace among major global central banks continued to diverge, with a notable reshaping of the liquidity landscape. The US Fed maintained interest rates unchanged at its April meeting. New York Fed President Williams publicly stated that if inflation data continued to pull back steadily toward the 2% policy target, the US Fed would cut interest rates at an appropriate time. Meanwhile, the Reserve Bank of Australia bucked the trend by tightening monetary policy, announcing a third consecutive rate hike, raising the cash rate to 4.35%, completely reversing the previous easing cycle. The divergent pattern of "US and Europe on hold, Australia tightening, China maintaining prudent easing" among global central banks solidified.

Protectionist sentiment continued to intensify in international trade, with US-EU trade friction officially escalating. On May 1 local time, US President Trump, citing the EU's failure to fulfill a previously agreed trade deal, announced that additional tariffs would be imposed on EU-imported cars and trucks next week, with rates sharply raised to 25%. Escalating friction between the US and EU as core trading economies not only pushed up overall global manufacturing trade costs and suppressed global end-user manufacturing recovery demand, but would also accelerate the restructuring of global automotive and related industry chain supply chains. As the automotive industry is a core downstream end-use consumption sector for aluminum semis, rising trade barriers would indirectly affect the pace of global aluminum semis end-use consumption. Meanwhile, rising global trade uncertainty further reinforced safe-haven trading sentiment in commodities.

Fundamentals: Inventory side, as of May 1, 2026, LME aluminum inventory stood at approximately 364,700 mt, continuing destocking to hit a nearly 20-year low. China inventory side, pre-holiday (April 30) aluminum ingot inventory in major consumption areas was 1.432 million mt. A trend reversal in social inventory remains difficult to form, and China aluminum ingot inventory will stay in the high range of 1.45–1.5 million mt after the Labour Day holiday.

Overall, multiple positive factors converged on the international front during the Labour Day holiday, with geopolitical conflicts, low overseas inventory, a weaker US dollar, and elevated energy costs resonating together to strongly support LME aluminum prices to hold up well. The ex-China aluminum market features tight supply, high costs, and a warm sentiment. In contrast, China's aluminum market was dragged down by social inventory accumulation and sluggish off-season downstream demand recovery, limiting upward momentum. In the short term, the core pattern of LME outperforms SHFE is unlikely to reverse. Strength in the overseas market will support SHFE aluminum's post-holiday catch-up potential, but high domestic inventory and weak demand will cap overall gains. Going forward, key focus will be on the pace of China aluminum ingot destocking and the strength of rigid demand release from downstream production resumptions.