SHFE aluminum consolidates and adjusts, alumina bulls exit [SMM Aluminum Briefing]

SMM, July 22:

The most-traded SHFE aluminum 2609 contract closed at 23,190 yuan/mt today, edging up 0.02% intraday. Trading volume amounted to 894.55 million lots, up 40,267 lots from the previous session, expanding noticeably. Open interest stood at 258,000 lots, a slight increase of 572 lots, but down 1,910 lots from the previous session, showing a small decline. The combination of surging volume and declining open interest pointed to resilient downside support, but upside resistance remained heavy.

SMM comment: On the macro front, the US-Iran conflict continued to escalate. The US military launched more airstrikes on Iran on July 17, while Iran carried out massive strikes on US military targets in Kuwait and Syria, and also attacked US-related facilities in Bahrain. The Middle East situation remained volatile, interest rate hike worries persisted in the market, supply was still recovering, yet the destocking pattern could not easily be reversed in the short term. Amid the tug-of-war between longs and shorts, aluminum prices were expected to consolidate and adjust in the near term. Close attention should be paid to the progress of production resumptions in the Middle East and the trajectory of geopolitical conflicts, LME aluminum ingot inventory changes, domestic downstream processing orders, and aluminum semis export data.

The most-traded alumina 2609 contract settled at 2,721 yuan/mt today, down 0.29% intraday, forming a slight pullback bearish candlestick. Trading volume was 81,525 lots, down 33,128 lots from the previous session, contraction sharply. Open interest was 302,000 lots, down 4,663 lots from the previous session, declining in tandem. Intraday, it peaked at 2,735 but lacked momentum to extend gains, with no fresh funds from bulls chasing higher. As prices pulled back, open interest fell accordingly, indicating that funds were actively exiting, and both longs and shorts were unwilling to continue the fight.

SMM comment: Total alumina inventory across China edged up MoM, with overall movement limited. By segment, raw material inventory at aluminum smelters declined, mainly because spot prices remained at relatively high levels and downstream aluminum smelters proactively slowed their procurement pace of high-priced raw materials, relying primarily on consuming in-factory inventory. Alumina refinery inventories, on the other hand, increased slightly, but maintenance-related production cuts at some plants in Shanxi were offset by new capacity releases in South China, keeping overall growth limited. Port-side inventories rebounded as new vessels arrived at ports one after another. Warrant inventory continued to drop due to invoicing issues and narrowing spreads between futures and spot prices, which weakened the willingness to ship to delivery warehouses. Inventories in transit and at stations accumulated, mainly because earlier warrants matured and were released into spot cargo, coupled with ongoing shipments from Guangxi, adding to supplies in circulation. The near-term operating pattern of the alumina market is expected to remain largely unchanged. Some enterprises using domestic ore will schedule maintenance due to tight ore supply, but the impact on monthly production is limited, and inventory levels will likely stay at current levels. Price-wise, as regional spot mismatch problems gradually ease, the center of spot prices could edge down slightly, and the subsequent trend will be under pressure.

[The information provided is for reference only. This article does not constitute direct advice for investment research or decision-making. Clients should make decisions prudently and not rely on this as a substitute for their independent judgment. Shanghai Metals Market is not liable for any decisions made by clients.]