Geopolitical Disruptions Combined with Supply-Demand Resonance, Aluminum Prices Hold Up Well at High Levels [SMM Aluminum Morning Meeting Minutes]

4.16 SMM Morning Meeting Minutes

Futures:SHFE aluminum closed at 25,375 yuan/mt in the night session, up 1.85%. The price was above all moving averages (MA5=24,955, MA10=24,843, MA40=24,532, MA60=24,439), with the moving average system in a bullish oscillation alignment. The MACD indicator DIF (171.61) and DEA (109.81) formed a golden cross and moved upward in tandem, with red bars continuing to expand and bullish momentum continuing to be released. Combined with the strong price-moving average structure, SHFE aluminum is expected to maintain a bullish trend in the short term. The suggested core trading range for SHFE aluminum is 24,800-25,500. LME aluminum closed at $3,624/mt, up 1.11%. The price stood above all moving averages MA5 (3,536.4), MA10 (3,502.65), MA40 (3,315.55), and MA60 (3,254.43), with the moving average system in a bullish alignment, confirming a short-term strong rebound pattern. DIF (81.8) and DEA (61.87) formed a "golden cross," with both lines moving upward in tandem and red bars continuing to expand, indicating that upward momentum is strengthening. The suggested core trading range for LME aluminum is 3,500-3,650.

Macro front:Ex-China, Iran stated that despite the US request for a two-week ceasefire extension, Iran has not agreed to the request so far. The US said the information was inaccurate. Iran proposed that if an agreement could be reached to prevent a renewed conflict, Iran might consider allowing vessels to navigate freely on the Omani side of the Strait of Hormuz without facing attack risks, and this idea has been incorporated into its negotiation proposal. China side, the General Office of the State Council recently issued the Opinions on Deepening the Reform of the Investment Approval System, which proposed that for industrial sectors with prominent disorderly competition, temporary regulatory measures such as suspension of approvals and filings may be implemented with the consent of the State Council, with specific requirements, timelines, and operational methods clearly defined.

Fundamentals:Supply side, ex-China, directly impacted by geopolitical conflicts, Middle Eastern aluminum enterprises cut production. UAE's EGA smelter and Alba were successively struck by Iranian missiles and drones, and combined with the production cut process initiated by Qatalum, the three smelters had a combined production cut of approximately 2.43 million mt. The global aluminum supply gap is expected to widen, with ex-China supply concerns continuing to escalate. LME inventory maintained a downward trend, with the latest data showing destocking to 393,800 mt. In March, the share of available Russian aluminum inventory in LME warehouses surged from 60% in February to 92% in March. China side, the proportion of liquid aluminum rebounded in March as downstream sectors fully resumed work after the holiday, up significantly by 9.3 percentage points MoM to 73.7%, higher than early-month expectations. Entering the traditional peak consumption season in April, downstream operating rates continued to rise, and the proportion of liquid aluminum was expected to climb further. Inventory side, high aluminum prices in China suppressed downstream enterprises' willingness to actively restock, with downstream enterprises generally purchasing as needed based on orders and maintaining low inventory operations, with no large-scale stockpiling behavior for the time being. On Monday this week, social inventory of aluminum ingots in China saw an inventory buildup of 11,000 mt WoW, with short-term inventory still at a relatively ample level.

Primary aluminum market:Yesterday morning, SHFE aluminum 2604 fluctuated upward. Affected by high aluminum prices, overall selling sentiment in the market was relatively strong, while buying sentiment was suppressed by aluminum prices, and end-user purchase willingness overall remained at a weak level. Available cargo in the market was relatively sufficient, with mainstream transactions concentrated around SMM A00 aluminum minus 10 yuan/mt to the average price. Yesterday, the shipment sentiment index in the east China market was 3.58, flat MoM; the procurement sentiment index was 2.90, down 0.04 MoM. Yesterday, futures aluminum prices continued to stay high. Downstream processing enterprises in the central China market had low purchase willingness, tending to wait and see on subsequent price trends, with some large factories maintaining just-needed minimal restocking. The optimal purchasing timing for trading firms engaging in both spot and futures market had not yet arrived. Overall buying sentiment in the market remained low but improved slightly compared to the previous day. Ultimately, the actual transaction price range in the central China market hovered between parity with the central China price and a discount of 20 yuan to the central China price, with relatively small fluctuations. Yesterday, the shipment sentiment index in the central China market was 2.82, up 0.01 MoM; the buying sentiment index was 2.37, up 0.01 MoM.

Aluminum scrap:The US-Iran conflict disrupted passage through the Strait of Hormuz, which in turn drove market sentiment and pushed aluminum prices higher. Yesterday, spot primary aluminum was flat compared to the previous trading day, and the aluminum scrap market remained generally stable, with minor adjustments in some regions and varieties. Yesterday, the tightening regulatory stance on the "reverse invoicing" policy remained unchanged, with compliance costs in the aluminum scrap recycling segment staying elevated, and actually available invoiced cargo remaining tight. Demand side, the divergence in shipments between wrought aluminum alloy scrap and aluminum tense scrap intensified. For aluminum tense scrap-based scrap such as shredded aluminum tense scrap and ADC12 aluminum shavings, downstream scrap utilization enterprises such as secondary alloy producers mostly maintained purchasing as needed with low inventory operations. For wrought aluminum alloy scrap-based scrap such as baled UBC and 5-series/3-series plate off-cuts, downstream secondary aluminum plate/sheet and strip enterprises were in peak production season, with relatively high stockpiling enthusiasm. However, overall, high price levels combined with wild swings in aluminum prices continued to suppress the purchasing enthusiasm of scrap utilization enterprises. Price difference between A00 aluminum and aluminum scrap: the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was recorded at 3,023 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 1,733 yuan/mt. The aluminum scrap market was expected to hover at highs this week, with the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) hovering around 20,800-21,300 yuan/mt (tax exclusive). Supply-side policy constraints are unlikely to ease in the short term. Tight compliant supply sources, combined with holders holding back cargoes, continue to underpin prices. Demand side, the divergence between aluminum tense scrap and wrought aluminum alloy scrap persists. Primary aluminum remains volatile due to factors such as Middle East geopolitical conflicts. Coupled with a lackluster recovery in downstream peak season, the overall tug-of-war between sellers and buyers continues. Caution is warranted against market risks arising from aluminum price fluctuations at highs and poor cargo circulation.

Secondary Aluminum Alloy:Spot cargo side, the ADC12 market remained largely stable yesterday. Most enterprises adopted a wait-and-see stance amid narrowing aluminum price fluctuations, though a few enterprises slightly lowered their quotes against the backdrop of weakening market sentiment and insufficient demand support. Overall, cost-side drivers were limited while demand-side performance was weak, with no notable improvement in transactions and a strong wait-and-see atmosphere in the market. In the short term, absent clear directional guidance, ADC12 prices may continue to move sideways. Attention should remain on aluminum price trends and changes in downstream procurement pace.

Aluminum Market Summary:Supply side, the substantial damage previously inflicted has become irreversible. Aluminum capacity in the Middle East suffered direct military strikes, with UAE's EGA and Bahrain's Alba successively attacked and production facilities damaged. The global aluminum supply gap expectations expanded significantly, and ex-China supply concerns continued to intensify. Meanwhile, China entered the traditional peak consumption season, with the proportion of liquid aluminum rebounding sharply to 73.7% and downstream operating rates rising steadily, providing solid demand-side support. Overall, from a macro perspective, Middle East conflict risks persist, resonating with fundamental supply-side hard damage and low global inventory to jointly provide strong floor support for aluminum prices. However, weak interest rate cut expectations, higher-than-expected aluminum ingot inventory buildup in China, and adverse expectations on consumption and inflation from recent high oil price fluctuations have all notably weighed on the upside room for aluminum prices. In the short term, aluminum prices are fluctuating at highs.

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