Geopolitical Risks Support SHFE Aluminum Rise, Alumina Rebound Drivers Weak [SMM Aluminum Brief]

SMM, July 23:

The most-traded SHFE aluminum 2609 contract closed at 23,345 yuan/mt today, gaining 85 yuan/mt, or 0.37%. It opened flat and consolidated, dipped to a low of 23,230 before stabilizing, then drifted higher, and closed near the session high, forming a full bullish candlestick with the price center continuing to rise. Trading volume was 98,520 lots, up 47,464 lots from the previous candlestick, a significant expansion; open interest stood at 258,000 lots, up 132 lots from the previous candlestick, inching higher. Short-term moving averages all turned upward, forming a persistent support band..

SMM Commentary: On the macro front, the US-Iran conflict continued to escalate. On July 17, US forces carried out further airstrikes against Iran, while Iran launched large-scale strikes on US targets in Kuwait and Syria and also attacked US military-related facilities in Bahrain. The Middle East situation remained volatile, concerns over interest rate hikes persisted, and supply continued to recover, but the destocking trend is unlikely to reverse in the short term. Amid the tug-of-war between longs and shorts, aluminum prices are expected to consolidate and adjust in the near term. Going forward, close attention should be paid to the progress of production resumptions in the Middle East, the trajectory of geopolitical conflicts, changes in LME aluminum ingot inventories, and China’s downstream processing orders and aluminum semis export data.

The most-traded alumina 2609 contract settled at 2,712 yuan/mt today, up 28 yuan/mt, or 1.04%. It opened lower, dipped to a low of 2,675, quickly stabilized, drifted higher, and closed higher, forming a bullish candlestick that bottomed out. Trading volume was 135,000 lots, up 14,166 lots from the previous candlestick, a significant expansion; open interest was 302,000 lots, down 14,426 lots from the previous candlestick, a sharp decline. The futures did not see a large number of new long positions being initiated aggressively; the rebound was driven by short covering rather than fresh buying pushing prices up. Old and new capital rotated, with old bears exiting while bulls did not enter in force; the sustainability of the rebound requires further observation..

SMM Commentary: China’s total alumina inventory edged up MoM, with limited overall fluctuations. By segment, raw material inventory at aluminum smelters declined, mainly because spot prices remained at relatively high levels, prompting downstream smelters to actively slow their procurement pace of high-priced raw materials and rely more on consuming in-factory inventory. In-factory inventory at alumina refineries rose slightly, but production cuts due to maintenance at some enterprises in Shanxi were offset by new capacity releases in south China, limiting overall growth. At ports, inventories increased due to the arrival of new vessels. Warrant inventory continued to decline, as invoicing issues and the narrowing spread between futures and spot prices weakened the willingness to ship to delivery warehouses. In-transit and station inventories accumulated, mainly because expired warrants were released as spot supply, and continued shipments from Guangxi increased availability in the logistics chain. The overall alumina market structure is expected to remain largely unchanged in the near term. Although some enterprises using domestic ore have maintenance schedules, the impact on monthly production is limited, and inventory levels will likely stay at current levels. On the price front, as regional spot supply mismatches gradually ease, the price center for spot cargo may pull back slightly, with future trends likely under pressure.

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