Geopolitical Tensions Boosted LME While China Inventory Buildup and Weakening Demand Kept Prices Under Pressure [SMM Aluminum Morning Meeting Minutes]

5.6 SMM Morning Meeting Minutes

Futures:The most-traded SHFE aluminum 2606 contract closed at 24,735 yuan/mt in the daytime session, up 1.21%. The price held above MA5 (24,649), MA10 (24,816.5), MA30 (24,661.83), and MA60 (24,525.25), with moving averages in a bullish alignment overall, indicating solid medium-term support. The MACD indicator DIF (21.1483) was below DEA (92.8891), with the histogram in negative territory (-143.4815), yet to form a golden cross, suggesting that bullish momentum remained in a weak recovery phase. The recommended core trading range for SHFE aluminum is 24,400-25,000. LME aluminum 3M contract closed at $3,588/mt, up 0.39%, edging up slightly. The price traded above MA5 (3,527.70), MA10 (3,556.15), MA30 (3,489.68), and MA60 (3,359.56), with moving averages in a bullish alignment, and the medium-term uptrend remained intact. The MACD indicator DIF (39.1408) was below DEA (50.7720), with the histogram in negative territory (-23.2624), yet to form a golden cross, suggesting that bullish momentum was in a relatively weak recovery phase. The recommended core trading range for LME aluminum is 3,550-3,610.

Macro front:US Secretary of State Rubio stated at a media briefing that the US military is advancing "Freedom Plan" clearance operations in the Strait of Hormuz to restore freedom of navigation in this critical international waterway. The US objective is to ensure the waterway remains open and to eliminate mining and toll-collection activities. Rubio indicated that US President Trump still favors resolving the issue through diplomatic channels. The US military operation "Epic Fury" launched against Iran in late February this year has concluded. According to Iran's Press TV, Iran has initiated a new maritime transit management mechanism, imposing unified management on vessels passing through the Strait of Hormuz. Sources said vessels are required to adjust their navigation operations under this framework and obtain transit permits before passing through the Strait of Hormuz.

Fundamentals:Supply side, as the traditional peak consumption season continued, downstream sectors such as plate/sheet, strip and foil, and aluminum wire and cable provided effective demand support. The proportion of liquid aluminum in China edged up, rising 1.7 percentage points MoM to 75.3% for the month, slightly below early-month expectations overall, with the core drag coming from weaker-than-expected aluminum extrusion orders. Based on SMM's liquid aluminum proportion calculation data, aluminum casting ingot volume in China declined 3.4% YoY and 9.0% MoM in April. Demand side, China's aluminum processing composite PMI registered 53.9% in April, still above the 50 mark but pulling back notably from the March high. Overall industry prosperity weakened at the margin, shifting from broad-based recovery to structural divergence. New energy and packaging demand still provided support, while property, automotive, and some export-linked segments recovered below expectations, and high aluminum prices also weighed on procurement and order release. Overall, the "Silver April" effect continued but with weakening momentum, and the industry operation trended toward a rational correction. Inventory side, on Wednesday this week, aluminum ingot inventory in China's major consumption regions stood at 1.456 million mt, up 24,000 mt WoW from pre-holiday levels.

Primary aluminum market:Last Thursday morning, SHFE aluminum 2605 fluctuated upward, with the overall aluminum price range still at relatively low levels recently. Some downstream enterprises had completed pre-holiday stockpiling, and overall restocking sentiment pulled back last Thursday. Affected by low aluminum prices, overall market shipments sentiment was weak. Some sellers, affected by declining aluminum prices, maintained relatively high quotations. Partly due to invoice shortages, May-invoice quotations were lower. The market quotation range was wide, with mainstream transactions concentrated around SMM A00 aluminum -20 to +20 yuan/mt. Last Thursday, the east China market shipments sentiment index was 2.75, down 0.16 WoW; the purchasing sentiment index was 2.90, down 0.74 WoW. On the last day before the Labour Day holiday, downstream processing enterprises in central China had basically completed advance stockpiling, and with May policies remaining unclear, traders' concerns over insufficient invoice quotas suppressed May-invoice transactions, and overall market buying sentiment was sluggish. However, some suppliers worried about insufficient invoices and tended to offload inventory in bulk, causing price collapse in some shipment prices. Ultimately, actual transaction prices in the central China market ranged from parity to a discount of 30 yuan to the central China price. Last Thursday, the central China market shipments sentiment index was 2.84, up 0.01 WoW; the purchasing sentiment index was 2.33, down 0.08 WoW.

Aluminum scrap:Last Thursday, spot primary aluminum edged down 90 yuan/mt from the previous trading day, and aluminum scrap prices adjusted accordingly. The tightening trend in reverse invoicing remained unchanged, with compliance costs for aluminum scrap recycling staying elevated. Yard suppliers held back from selling and held prices firm, and the tight availability of invoiced goods in circulation was unlikely to ease in the short term. Moreover, some traders saw their invoicing quotas decline, resonating with reverse invoicing restrictions and exacerbating the structural shortage of compliant supply. LME aluminum scrap prices continued to rise, squeezing import traders' margins, with purchasing sentiment turning notably cautious. Subsequent imports are expected to pull back, and the previous supplementation of domestic supply through imports is expected to weaken marginally, likely further reinforcing the tight supply situation. Demand side, pre-Labour Day holiday stockpiling sentiment was subdued, with downstream scrap utilization enterprises showing low purchasing enthusiasm, and pre-holiday restocking fell short of expectations. In the first week after the Labour Day holiday, China's aluminum scrap market is expected to continue its high-level in the doldrums pattern, with shredded aluminum tense scrap (priced based on aluminum content) mainstream range expected to remain around 20,700-21,300 yuan/mt (tax-exclusive). Supply-side policy constraints persisted, and aluminum scrap imports are expected to decline, weakening supply supplementation. However, the peak season effect is winding down, demand for aluminum tense scrap remains persistently weak, and expectations for incremental end-user orders are limited. In the short term, attention should be paid to the progress of US-Iran negotiations, the implementation of invoice and reverse invoicing policies, and the recovery of post-holiday orders at scrap utilization enterprises.

Secondary aluminum alloy:Spot cargo side, last Thursday the ADC12 market overall continued to be in the doldrums. Affected by primary aluminum price pullbacks and sluggish downstream demand, enterprises actively lowered quotes by small margins, and the mainstream transaction center shifted downward. Meanwhile, as the Labour Day holiday approached, downstream enterprises successively entered production suspension or production cuts status, pre-holiday stocking demand was notably insufficient, and market trading atmosphere turned sluggish. In the short term, ADC12 prices are likely to remain in the doldrums, and post-holiday attention should focus on the pace of downstream production resumptions and demand recovery.

Aluminum market summary:During the Labour Day holiday, multiple positive factors converged at the international level — geopolitical conflicts, low ex-China inventory, a weakening US dollar, and elevated energy costs — these four core factors resonated together, strongly supporting LME aluminum prices to hold up well. The ex-China aluminum market featured tight supply, high costs, and a warm sentiment. In contrast, China's aluminum market was dragged down by accumulating social inventory and weak off-season demand recovery, with upward momentum constrained. In the short term, the core pattern of LME outperforming SHFE is difficult to reverse. LME strength will support SHFE aluminum's post-holiday catch-up space, but high domestic inventory and weak demand will suppress overall gains. Going forward, key focus should be on the pace of domestic aluminum ingot destocking and the intensity of rigid demand release from downstream production resumptions.

[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 replace independent judgment with this information. Any decisions made by clients are unrelated to SMM.]