Divergence Between Domestic and Overseas Aluminum Markets Consolidated and Rebounded; Easing Middle East Tensions Disrupted Aluminum Price Risk Premiums [SMM Aluminum Morning Meeting Minutes]

8.5 SMM Aluminum Morning Meeting Minutes

Futures: The most-traded SHFE aluminum 2609 contract closed at 23,745 yuan/mt, up 20 yuan from the previous settlement, a gain of 0.08%. It opened at 23,800 yuan/mt and fluctuated in the range of 23,715-23,840 yuan/mt. Prices traded above MA5 (23,690.00), MA10 (23,489.00), and MA30 (23,158.50), and near the MA60 (23,759.17). Medium- and long-term moving averages remained in a bearish alignment and continued to press lower. The low-level consolidation and repair structure persisted, with the 60-day moving average above forming key resistance. The MACD indicator showed DIF (69.24) above DEA (-28.4106), with the MACD red histogram at 195.3090. Bearish momentum continued to weaken, while bullish repair momentum remained strong. The suggested core trading range for SHFE aluminum was 23,500-24,000 yuan/mt. The LME aluminum 3M contract closed at $3,211.00/mt, down 0.20%. It opened at $3,215.00/mt and fluctuated in the range of $3,205.00-$3,218.00/mt. Prices traded above MA5 (3,208.70), MA10 (3,189.65), and MA30 (3,160.98), but below MA60 (3,355.46). Medium- and long-term moving averages were in a bearish alignment and gradually pressed lower. Overall, a low-level consolidation and repair structure emerged, with the 60-day moving average above forming clear resistance. The MACD indicator showed DIF (-14.0943) above DEA (-30.5426), with the MACD red histogram at 32.8965. Bearish momentum continued to weaken, and the downward momentum slowed. The suggested core trading range for LME aluminum was $3,150-3,300/mt.

Macro front: Negotiations on restoring navigation through the Strait of Hormuz showed the most obvious positive signals so far. Iran abandoned its previous stance of requiring full control over two-way shipping through the Strait of Hormuz. The Iranian government was considering allowing European countries to participate in mine-clearing operations in the Strait of Hormuz, which had been one of the core issues on which Iran had consistently refused to make concessions in prior talks. Iranian Foreign Ministry spokesperson Baghaei said Iran was still negotiating with Oman on the Strait of Hormuz, and the talks had made “positive progress” at both technical and political levels. Philadelphia Fed President Paulson said he would keep an open mind on the direction of monetary policy, and whether core inflation could continue to pull back was a key basis for his judgment. If underlying inflation stayed high, the US Fed might need to further tighten monetary policy to ensure inflation returns to the 2% target. The central bank will conduct a 500 billion yuan, 3-month outright reverse repo operation on August 5. As 300 billion yuan of 3-month outright reverse repos will mature in August, the central bank will make a net injection of 200 billion yuan via 3-month outright reverse repos, marking a net injection for two consecutive months through 3-month outright reverse repos.

Fundamentals: Markets outside China, overseas aluminum production resumptions and new capacity continued to ramp up as planned. Expectations persisted that the global aluminum market would shift from tightness to looseness in the longer term. New progress emerged in US-Iran talks, improving expectations for passage through the strait; the geopolitical premium narrowed somewhat, though uncertainties remained. In the short term, the US Fed kept an open mind on the direction of monetary policy, easing its pressure on the nonferrous sector. In China, the central bank conducted a 500 billion yuan, 3-month outright reverse repo operation; monetary policy leaned toward steady easing, which will provide some underpinning for liquidity. Inventory: yesterday, aluminum ingot inventory in major consumption areas fell by 2,000 mt MoM, with inventory buildup only in Gongyi.

Primary aluminum market: In early trading, SHFE aluminum 2608 traded with a notably higher center than yesterday, affecting downstream buying sentiment. The center of aluminum prices moved higher, and the pace of inventory drawdown slowed. However, as it was the beginning of the month, some enterprises showed sentiment to hold prices firm. Today, spot premiums for SHFE aluminum were mainly transacted with a center between 8-30 yuan/mt and 08-10 yuan/mt. Today, the willingness-to-sell sentiment index in east China was 3.09, up 0.02 MoM; the buying sentiment index was 2.8, down 0.13 MoM. Aluminum futures rose again. Today, the trading atmosphere in the central China market remained sluggish, and downstream processing enterprises’ purchase willingness stayed at a low level. Traders tended to purchase in large volumes at low discounts to capture the price spread, and traders’ buying sentiment was strong. Ultimately, the actual transaction price range in central China was around a discount of 190-210 yuan/mt against the SHFE aluminum 08 contract, and showed an upward trend. Today, the willingness-to-sell sentiment index in central China was 3.2, unchanged MoM; the buying sentiment index was 2.91, up 0.06 MoM. Aluminum prices surged again today, and the spot market weakened under pressure. On the one hand, the spike in absolute prices prompted accelerated one-way outflows for cash realization; on the other hand, the spot-futures price spread remained at a relatively high level compared with the earlier deep discounts, and warrant cargoes also had ample room to be sold for cash. In addition, unfavourable factors such as longer storage time and smaller lot sizes for warrants severely impacted circulation. Suppliers shifted from attempting to hold prices firm to cutting prices to sell, with quotes mainly at discounts of -30 to 0. Downstream buyers were unable to chase higher prices, and demand weakened. Traders only pushed for lower prices and bought low discounts as needed, with little interest in entering the market at discounts. Transactions saw oversupply.

Aluminum scrap: Today, SMM A00 spot aluminum closed at 23,730 yuan/mt, up 230 yuan/mt from the previous trading day. Aluminum scrap prices across regions generally followed the rise, while some regions mainly stayed on the sidelines for certain grades. In terms of the price difference between A00 aluminum and aluminum scrap, on August 4, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,160 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 950 yuan/mt. Against the backdrop of the off-season, aluminum scrap suppliers generally showed low willingness to sell at low prices, and aluminum scrap prices stayed firm overall. Demand side, as the high-temperature holiday approached, operating rates at downstream cast aluminum alloy enterprises declined and orders shrank; operating rates at secondary aluminum plate/sheet and strip enterprises were moderate, but overall raw material demand weakened significantly compared with Q2. In the short term, the tight supply of compliant, invoiced cargoes on the supply side persisted, and suppliers’ insufficient willingness to sell at low prices provided bottom support for prices. Import side, the lagged effects of the UAE export ban and the EU tariff hike policy will gradually emerge in subsequent months, and port arrivals from June to August stayed at low levels. Demand side, the sluggishness in downstream orders was unlikely to change in the short term. Scrap utilization enterprises were likely to continue purchasing as needed and maintaining low inventories, and the purchasing atmosphere was unlikely to improve significantly.

Secondary aluminum alloy: Spot: Today, ADC12 market quotes showed a slight rebound overall, with a broad-based increase of 100 yuan/mt, mainly driven by the rebound in aluminum prices and stronger cost support. However, this round of price increases more reflected a repair of earlier declines, and demand improvement was still not obvious. Some downstream enterprises gradually entered the high-temperature holiday, orders were weak, and purchases remained mainly for rigid demand. Therefore, although current ADC12 prices rebounded with cost support, weak demand still constrained upside room. In the short term, the market will maintain a consolidation pattern where cost support and weak demand coexist.
Outlook Summary: Recently, the macro front has improved, and the marginal constraint on the nonferrous sector has eased as expectations for rate hikes remain on hold. Meanwhile, the proportion of liquid aluminum in China has continued to rise, jointly supporting aluminum prices. However, the continued rollout of forward capacity for aluminum outside China, weak traditional end-use demand in China during the traditional off-season, and disruptions from uncertainties in the Middle East geopolitical situation are expected to keep aluminum prices consolidating on a strong note.

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