SHFE Aluminum Rebounded Strongly from Lows, Standing Above Short-Term Moving Averages; Alumina Edged Up with Sharp Position Reduction, Weakness Hard to Change [SMM Aluminum Brief]

SMM, July 29:

The most-traded SHFE aluminum 2609 contract closed at 23,455 yuan/mt today, up 240 yuan for the day, a gain of 1.03%. Trading volume was 267,105 lots, and open interest was 253,776 lots, with an increase of 2,341 lots for the day. Minor additions to open interest entered the market, signaling a slight tug-of-war between longs and shorts. The price action moved above the 5-day and 10-day moving averages but remained below the 60-day moving average. Bearish pressure in the short term eased, and after a sharp decline earlier, the price has been repairing from lows. An intraday dip was met with buying, leading to a strong rally and a substantial gain for the day, with the strength of buying at the lows clearly improving. The 5-day and 10-day moving averages are turning downward, while the 30-day and 60-day moving averages are declining in tandem, indicating that the medium-term downtrend remains unchanged. The 60-day moving average above forms a strong medium and long-term resistance, continuously limiting room for a rebound. The short-term moving averages below provide support at the lows. The DIF and DEA lines are below the zero axis, but bearish momentum is contracting, increasing momentum for a rebound from lows, and easing overall downward pressure.

SMM Commentary: Persistent geopolitical risk premiums in the Middle East, combined with China's continued destocking of aluminum ingots, jointly supported aluminum prices. However, the ongoing addition of aluminum capacity outside China for the medium and long term, weak end-use demand in China, together with fluctuating expectations for US Fed interest rate hikes and uncertainty from Middle East geopolitical disruptions, put notable pressure on the upside room for aluminum prices. Aluminum prices maintain a fluctuating trend in the short term.

The most-traded alumina 2609 contract closed at 2,683 yuan/mt today, up 2 yuan for the day, a 0.07% gain. Trading volume reached 188,688 lots, and open interest was 255,044 lots, with open interest down 34,885 lots MoM, as funds significantly reduced positions and exited the market. The price is below the 5-day, 10-day, 30-day, and 60-day moving averages, with all-timeframe moving averages arrayed bearishly from top to bottom. A stalemate persists between bulls and bears in the short term, with the price moving sideways to edge up. Short-term bullish buying at the lows is relatively weak, as medium and long-term moving averages have all transitioned from support to resistance levels. The medium-term drift lower pattern remains unchanged, and the price's rebound repair phase will face layered resistance from all timeframe moving averages.

SMM Commentary: Supply side, weekly production was basically flat compared to the previous week, operating steadily, but the loose supply pattern remained unchanged, continuously pressuring prices. Inventory side, China's total alumina inventory grew 24,000 mt MoM to 7.028 million mt, as the inventory buildup trend continued. For markets outside China, geopolitical conflicts previously led a large amount of low-priced cargo to flow into China, depleting overseas circulating inventory. Recently, stockpiling demand for newly added capacity in Indonesia and restocking needs from production resumptions in the Middle East were released in a concentrated fashion. Spot cargo outside China has shifted from loose to tight, driving a marked increase in alumina prices outside China. Looking ahead, China's domestic market lacks macro-level bullish drivers, and the oversupply pattern continues to exert pressure. Short-term prices are expected to remain in the doldrums. Additionally, expectations for production ramp-ups in Guangxi suggest that inventory will continue to build next week.

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