Macro front sentiment slightly improves, distant surplus pressure persists [SMM aluminum price weekly review]

SMM, July 23:

1. Macro Front

The US-Iran conflict continues to escalate, maintaining disruptions to shipping in the Strait of Hormuz. Regional geopolitical risk premiums persist and supply uncertainties linger. The US CPI monthly rate turned negative for the first time in six years, dampening market expectations of an imminent US Fed rate hike and easing marginal constraints on the nonferrous metals sector.

2. Fundamentals

In markets outside China, production resumptions and new capacity for aluminum outside China continue to ramp up as planned, sustaining market expectations that global aluminum supply will shift from tight to loose in the long term and persistently limiting upside room for aluminum prices. However, ongoing Middle East shipping risks continue to stir concerns that regional raw material inflows and finished aluminum outflows could be obstructed; coupled with rising crude oil prices pushing up smelting energy costs outside China, this provides some bottom support for aluminum prices in the short term. LME visible inventory currently remains low, but the improvement in spot premiums is limited, leaving bulls with insufficient momentum for sustained upward moves.

In the Chinese market, inventory side, China’s aluminum social inventory continues its destocking channel, providing strong support for aluminum prices.

3. Overall Assessment

Overall, macro sentiment has improved slightly recently. Sustained Middle East geopolitical risk premiums and ongoing destocking of aluminum ingot in China jointly underpin aluminum prices. However, the continued rollout of aluminum capacity outside China in the long term, weak traditional end-use demand in China, and repeated macro uncertainties create significant pressure on aluminum’s upside room. Overall assessment: aluminum prices are expected to maintain a consolidation pattern in the short term. Next week, the most-traded SHFE aluminum contract is expected to trade in the range of 22,800-23,500 yuan/mt, and LME aluminum is expected to trade in the range of $3,150-3,220/mt.

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