Middle East Geopolitical Risks Ease Significantly; Aluminum Prices Expected to Hover at Highs in the Short Term [SMM Aluminum Morning Meeting Minutes]

3.9 SMM Morning Meeting Minutes

Futures: The most-traded SHFE aluminum 2604 contract closed at 24,850 yuan, still well above long-term moving averages such as MA30 (24,251.09) and MA60 (23,585.42), indicating that the medium- and long-term uptrend has not yet reversed. However, in the MACD indicator, although the DIF line (266.31) was above the DEA line (158.48), vigilance is needed for a potential bearish divergence signal if the momentum of the red histogram subsequently contracts. In terms of trading volume, 190,306 lots were traded that day, significantly higher than the average volumes of MA5 and MA10; the decline was accompanied by higher volume, indicating that short-term bearish momentum was being released. The suggested core trading range for SHFE aluminum is 24,500-25,100. LME aluminum closed at $3,388, still above a bullishly aligned moving-average system (MA5: 3,344.4 > MA10: 3,247.5), but the closing price was already slightly below MA5, indicating that the short-term upward momentum met resistance. Its MACD indicator was also in a strong zone above the zero axis, but attention should be paid to whether the DIF line can obtain effective support above the DEA line. The suggested core trading range for LME aluminum is 3,350-3,420.

Macro front: US President Trump said the US war with Iran could end soon. Trump said the war was basically over, almost. (Bearish★) With Chinese New Year holiday factors combined with a recovery in consumption demand, China’s February CPI rose 1.3% YoY, the highest in nearly three years, while core CPI excluding food and energy prices rose 1.8% YoY. Driven by factors including rising international commodity prices, rapid demand growth in some domestic industries, and the continued effectiveness of macro policies, the national PPI fell 0.9% YoY, with the decline narrowing for three consecutive months. (Bullish★)

Fundamentals: Supply side, newly commissioned aluminum projects in China, Indonesia, and Angola continued to ramp up production, but escalating geopolitical conflict in the Middle East may have already affected production or shipments at some aluminum smelters, and daily average production is expected to decrease. Demand side, after the holiday, as downstream players gradually resumed work, demand recovered, and the proportion of liquid aluminum rebounded significantly; the weekly proportion of liquid aluminum rebounded by about 8 percentage points WoW. Downstream weekly operating rates rose further, including: in March, power grid order deliveries were expected clearly, and aluminum wire and cable demand recovered well; demand for products such as can stock, autos, and battery continued to recover, driving a recovery in demand across related segments; construction demand recovered relatively slowly; starting April 1, export tax rebates for PV products will be canceled, and the PV industry’s relatively high operating rate is expected to continue through month-end March. Inventory side, inventory increased by 15,000 mt this Monday WoW Thursday; demand was still in the recovery stage, casting ingot output in March is expected to remain high, and together with volumes not yet warehoused and some finished product inventories at aluminum smelters not yet shipped to social warehouses, the domestic aluminum ingot social inventory buildup trend is expected to continue in the short term, with the post-holiday peak still expected to reach 1.35-1.4 million mt.

Primary Aluminum Market:In early trading, SHFE aluminum 2602 rose and then fell, with the price center significantly higher than the previous trading day. Yesterday, amid heightened futures fluctuations, the market saw strong wait-and-see sentiment and weaker buying sentiment. Mainstream quotations and transaction prices yesterday were concentrated at a discount of 20 yuan/mt to the average price. Yesterday, the shipments sentiment index in east China was 3.22, up 0.11 MoM; the purchasing sentiment index was 2.49, down 0.27 MoM. As aluminum prices rebounded sharply, trading activity in central China was weak. Traders and downstream processing enterprises were mostly in wait-and-see mode, with relatively sluggish buying sentiment, and suppliers showed weak willingness to hold prices firm, tending to ship appropriately on price strength. As a result, overall transaction prices in central China were concentrated from parity with the central China price to a discount of 30 yuan/mt to the central China price, and the continued downward trend was not significant. Yesterday, the shipments sentiment index in central China was 2.7, up 0.04 MoM; the purchasing sentiment index was 2.4, down 0.01 MoM.

Aluminum Scrap:Geopolitical tailwinds continued to fluctuate, driving spot aluminum to rise sharply by 750 yuan/mt WoW yesterday versus the previous trading day, and the aluminum scrap market followed suit with broad gains. In terms of the price difference between A00 aluminum and aluminum scrap, on March 9, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 3,748 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,834 yuan/mt. Against the backdrop of surging aluminum prices, price-adjustment sentiment varied across regions: east China followed the rise quickly, with a single-day increase of 400-600 yuan/mt, while central China and south China adjusted prices by 300-400 yuan/mt on the day. After the holiday, domestic aluminum scrap yards and downstream scrap utilization enterprises had basically fully resumed normal production pace, but end-use demand recovered slowly, and actual restocking of raw materials fell short of expectations. The aluminum scrap market was expected to hold up well at highs this week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) operating around 20,700-21,300 yuan/mt (tax excluded). After the holiday, production order gradually recovered and the release of supply became looser, but downstream processing enterprises saw slow order recovery. Overall trading was expected to remain sluggish, and the supply-demand tug-of-war between sellers and buyers was set to intensify in the short term. Close attention should be paid to the impact of the US-Iran conflict on primary aluminum supply and transportation, downstream resumption progress, and changes in recycling policies, and vigilance is needed for heightened price fluctuation risks

Secondary Aluminum Alloy:In futures, the aluminum alloy 2604 contract surged quickly in early trading to an intraday high of 24,420 yuan/mt, up more than 5%, then fluctuated at highs and pulled back; it plunged sharply in the afternoon, dipping to an intraday low of 23,095 yuan/mt, and rebounded slightly into the close. It finally settled at 23,670 yuan/mt, up 390 yuan/mt from the previous close, a gain of 1.68%; trading volume was 17,439, and open interest fell by 174 to 5,853. Yesterday, the SMM ADC12 price rose by 500 yuan/mt, with the market quotation center moving up notably, and most producers’ price adjustments were concentrated in the 500-600 yuan/mt range. Recently, raw material prices continued to strengthen, and the cost side rose rapidly, significantly lifting enterprise quotations. However, downstream demand remained relatively steady. Most enterprises reported that orders and inquiries were generally average overall, and downstream procurement was still mainly restocking on an as-needed basis. Supported by cost push and market expectations, enterprises showed a clear willingness to raise prices. In the short term, against the backdrop of cost support and mild supply release, ADC12 prices are expected to hold up well in a rangebound pattern. The medium-term trend will still depend on the recovery in end-use consumption. If die-casting industry orders increase significantly, the price center is expected to move further higher; if demand recovery falls short of expectations, coupled with a continued rise in operating rates on the supply side, prices will shift from elevated levels into rangebound consolidation.

Aluminum Market Summary:Macro front, the risk of Middle East geopolitical conflict that previously boosted market sentiment cooled markedly following Trump’s statement that “the war is about to end.” This portion of the risk premium will face a pullback, putting some pressure on aluminum prices in the short term. Meanwhile, China’s February CPI hit a nearly three-year high, and the YoY decline in PPI narrowed for consecutive months, indicating a mild recovery in domestic demand and a rebound in industrial prosperity, providing solid macro support for demand for base metals such as aluminum. Demand side showed an accelerated post-holiday recovery: the proportion of liquid aluminum rebounded sharply, downstream operating rates rose further, and demand in the power grid, can stock, automotive, battery and other sectors recovered well; PV installation rush demand also provided short-term support. However, inventory still remained under pressure. Inventory continued to rise this week, and March casting ingot output stayed at high levels. The inventory buildup trend is expected to continue, with the post-holiday peak reaching 1.35-1.4 million mt, constraining upside room for prices. Overall, from a macro perspective, easing geopolitical risks and continued inventory buildup in domestic social inventory created bearish pressure on aluminum prices. However, the Middle East geopolitical situation remains unclear; if the conflict persists, expectations for global aluminum supply tightens will remain strong, and aluminum prices will still have strong upward momentum. In the short term, aluminum prices are still expected to hold up well.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make decisions prudently and should not replace their own independent judgment with this information. Any decisions made by clients are unrelated to SMM.]