Dispute over Strait Management Rights Continues; Short-term Bearish Factors Dominate Aluminum Price [SMM Aluminum Morning Brief]

June 30 SMM Morning Briefing

Futures: SHFE aluminum settled at 22,515 yuan/mt, plunging 2.19%, with an intraday fluctuation range of 22,455–22,990. The price was well below all key moving averages (MA5=22,985, MA10≈23,622, MA30=24,085.5, MA60=24,460.67), with the moving average system in a bearish alignment and accelerating its divergence, intensifying the weak pattern. The MACD showed DIF=-420.88, DEA=-284.31, a death cross downward, and the negative histogram bar expanded to -273.16, indicating persistently strengthening bearish momentum that reached a new low. Trading volume surged to 182,000 lots, with selling pressure increasing significantly. The suggested reference trading range for SHFE aluminum is 22,400–22,800. LME aluminum settled at $3,100.5/mt, edging up 0.06%, with an intraday fluctuation of $3,096–$3,103.5. The price was well below all key moving averages (MA5=3,139.5, MA10=3,253.25, MA30=3,488.05, MA60=3,520.13), with the moving average system in a bearish alignment, and the medium-term trend clearly weakening. The MACD showed DIF=-120.40, DEA=-84.37, a death cross downward, and the negative histogram bar expanded to -72.07, indicating persistently strengthening bearish momentum. The suggested reference trading range for LME aluminum is 3,080–3,130.

Macro front: The Oman-Iran joint working group held its first meeting on the Strait of Hormuz, exchanging views on the future management of the strait and related topics. Omani Foreign Minister Badr stated that Oman does not support imposing transit fees on passing vessels, but he did not rule out the possibility of discussing maritime service-related mechanisms. Iranian Deputy Foreign Minister Gharibabadi emphasized that all ships must pass through the Strait of Hormuz via the "Iran route," otherwise Iran would take measures against those vessels. Kevin Hassett, Director of the US National Economic Council, said that based on all signs seen so far, Thursday's nonfarm payrolls report is expected to show "another strong number." The surge in US AI productivity has a disinflationary effect, so the case for a rate hike is currently insufficient.

Fundamentals: Supply side, according to SMM data, China's aluminum production rebounded WoW this week, mainly driven by the ramp-up of newly commissioned capacity and production resumptions of idle capacity. Last week, the proportion of liquid aluminum rose by 0.2 percentage points WoW, and casting ingot volume further declined. Outside China, earlier high prices stimulated accelerated commissioning of new projects. As new projects are energized and ramp up production, operating aluminum capacity outside China is expected to further rebound WoW. Inventory side, aluminum inventory continued its smooth destocking trend this week. As of Monday, China's aluminum ingot social inventory fell by 40,000 mt from last Thursday and by 82,000 mt from last Monday. Weakening aluminum prices led to a pickup in downstream buying sentiment, driving the destocking of aluminum ingot. On the export front, the SHFE/LME price ratio recovered rapidly last week, sharply narrowing the profit margin that had driven massive aluminum semis exports. New orders in some segments have already declined, and with orders on hand gradually being fulfilled, if export margins cannot be restored, there is a risk of subsequent reduction in aluminum semis exports.

Primary aluminum market: In early trading, the SHFE aluminum 2606 contract center was higher than the same period on the previous trading day. As aluminum prices rose, overall purchasing sentiment in the market weakened yesterday. Some warrant cargoes flowed into the market, leaving overall supply relatively ample. Mainstream transactions were at a discount of 10~0 yuan/mt against the SHFE 2407 contract. Yesterday, the selling sentiment index in east China was 3.18, up 0.03 from the previous day; the buying sentiment index was 2.86, down 0.14. Yesterday, SHFE aluminum futures saw a slight correction, with the central China market trading mostly sluggish. Downstream processing enterprises showed weak buying sentiment, and as traders recently sold large volumes of low-priced warrants, market supply was abundant, prompting suppliers to sell at collapsing prices with poor willingness to hold prices firm. Eventually, actual transaction prices in the central China market centered around a discount of 20-50 yuan/mt against the SHFE 2407 contract, exhibiting a weakening trend. Yesterday, the selling sentiment index in central China was 2.91, up 0.01 from the previous day; the buying sentiment index was 2.13, down 0.01.

Secondary aluminum raw materials: Yesterday, the SMM A00 spot aluminum price closed at 22,940 yuan/mt, edging up 60 yuan/mt from the previous trading day, and the aluminum scrap market generally followed the increase. Over the weekend, regions such as Jiangxi, Anhui, and Hubei adjusted according to the futures movement, first raising prices for aluminum tense scrap by 100-200 yuan/mt. Regarding the price difference between scrap and primary aluminum, on June 26, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 1,893 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 912 yuan/mt. The price decline in aluminum tense scrap was smaller than that in wrought aluminum alloy scrap. The supply side remained tight, the regulation of the reverse invoicing policy tightened, and production cuts and shutdowns among small and medium scrap utilization enterprises in Anhui, Jiangxi, Hubei and other regions spread, increasing the scarcity of compliantly invoiced aluminum scrap. On the import side, due to a shipping lag of 1 to 3 months, port arrivals of aluminum scrap are expected to remain low from June to August. In addition, the UAE’s temporary ban on aluminum scrap exports for four months starting June 3 further intensified expectations of tight supply for high-quality scrap in Asia. This week, the aluminum scrap market is expected to remain in the doldrums at high levels, but the downside room is limited. The mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) is expected to trade at 19,300–19,900 yuan/mt (excluding tax). Constraints from the reverse invoicing policy and the delayed contraction of imported scrap continue to provide bottom support, but weak off-season demand and the low operating rate of downstream enterprises cap the upside room. Future attention should be paid to the pace of policy compliance, the progress of US-Iran peace talks and Hormuz maritime passage, the pace of overseas scrap port arrivals, and changes in downstream operating rates in China.

Secondary Aluminum Alloy: Spot market: Yesterday, ADC12 market prices were generally stable with slight rise. SMM ADC12 prices increased by 100 yuan/mt from the previous day to 23,950 yuan/mt, with the market center edging higher. The core driver behind the price rise remained on the cost side. Aluminum scrap prices stayed high, while tight supply of compliant raw materials and cost pressure from tax invoices persisted, keeping production costs elevated for enterprises. Although downstream demand was mediocre with limited new orders, and downstream procurement remained mainly needs-based restocking, enterprises' willingness to hold prices firm was relatively unified amid strong cost support. Some enterprises, having already adjusted prices earlier, opted to hold steady and observe yesterday, but overall bullish sentiment still dominated the market. In the short term, without a marked improvement in demand, further sharp rises in ADC12 prices are constrained in momentum; however, cost support remains strong, and prices are expected to consolidate but hold up well.

Aluminum Market Summary: The dispute over the governance of the Strait of Hormuz persisted, and the resumption of navigation through the strait remained uncertain. The hawkish shift by the US Fed boosted the US dollar index, weighing on non-ferrous metal prices. Under macro headwinds, aluminum prices fell in and outside China. In the short term, bearish factors dominated, and aluminum prices are expected to remain in the doldrums.

[The information provided is for reference only. This article does not constitute direct advice for investment research and decision-making. Clients should make decisions prudently and not use this as a substitute for independent judgment. Any decisions made by clients have no bearing on SMM.]