Hormuz situation remains uncertain, off-season downstream weakness limits the upside room for aluminum prices 【SMM Aluminum Morning Briefing】

8.7 SMM Aluminum Morning Meeting Minutes

Futures: The most-traded SHFE aluminum 2609 contract settled at 23,925 yuan/mt, up 90 yuan from yesterday's settlement price, an increase of 0.38%. It opened at 23,875.00 yuan/mt during the day and fluctuated in the range of 23,835‑23,945 yuan/mt. Prices are trading above the MA5 (23,794.00), MA10 (23,609.50), MA30 (23,220.67), and MA60 (23,726.42) moving averages. The medium and long-term moving averages are overall in a bearish alignment and continue to exert downward pressure. The pattern of drifting higher from lows is persisting, with the high-level range above forming key resistance pressure. The MACD indicator's DIF (114.4849) is above DEA (19.7551), with a MACD histogram reading of 189.4596. Bearish momentum continues to weaken, while bullish recovery momentum remains strong. The core trading range for SHFE aluminum is recommended to be referenced at 23,500‑24,200 yuan/mt. The LME aluminum three-month contract settled at $3,267/mt, up 0.00%. It opened at $3,265/mt during the day and fluctuated within the range of $3,262‑$3,267/mt. Prices are above the MA5 (3,244.90), MA10 (3,211.05), and MA30 (3,167.17) but below the MA60 (3,343.12). The medium and long-term moving averages are in a bearish alignment and gradually pressing downward. A pattern of low-level consolidation and repair is emerging, with the 60-day moving average above providing clear resistance. The MACD indicator's DIF (-0.1051) is above DEA (-19.9589), with a MACD histogram reading of 40.1279. Bearish momentum continues to fade, and the contract is consolidating at lows. The core trading range for LME aluminum is recommended to be referenced at $3,200‑$3,300/mt.

Macro Front: US President Trump stated that the agreement on reopening the Strait of Hormuz "cannot yet be said to have been formally reached," but the strait is now "open to some extent." The US is participating in related negotiations, and overall progress is good. The US Navy is currently conducting a blockade operation against Iran and controlling the relevant waters, but security risks such as mines could still affect commercial shipping passage. Iranian Parliament Presidium member Salimi disclosed details of the preliminary text of Iran's proposed strategic management plan for the Strait of Hormuz, which includes banning hostile parties from transiting the strait, with violators fined up to 20% of the cargo value. Vessels from the US, Israel, and other countries will be banned from transiting the Strait of Hormuz. The draft raised market concerns about potential disruptions to global crude oil transportation, sending international oil prices surging. The most-traded US crude oil contract rose 4%, and the most-traded Brent crude oil contract rose over 4%. Sources say that if inflation data released in the coming weeks runs hot and the market further raises rate hike expectations, Fed Chairman Warsh is prepared to support a rate increase. Warsh also acknowledged communication missteps since taking office as Fed Chairman, failing to sufficiently reinforce the key message of price stability. It was reported that Trump asked Warsh for economic forecasts and views but did not press him to adopt any specific policy actions.

Fundamentals: Supply side, this week, China's weekly aluminum production was basically stable, and the proportion of liquid aluminum rose 0.19 ppt WoW. Outside China, with ramp-up of new projects and ongoing production resumptions, aluminum supply is expected to keep increasing. However, the global aluminum ingot destocking trend remains unchanged in the short term. Demand side, the downstream processing sector was in the traditional off-season, with overall operating rates under pressure; aluminum billet processing fees pulled back, weakening substitution demand for aluminum ingots. Inventory side, this week, China's aluminum social inventory continued its destocking trend. As of Thursday, China's aluminum ingot social inventory fell 20,000 mt WoW from last Thursday and 25,000 mt from this Monday, with the destocking pace narrowing further; meanwhile, aluminum billet inventory built slightly by 4,000 mt WoW. In the short term, aluminum ingot inventory is expected to continue destocking.

Primary aluminum market: In the morning session, the SHFE aluminum 2608 contract moved with its center significantly higher than yesterday. Current prices suppressed downstream procurement, but with delivery approaching, some suppliers were unwilling to sell at low prices. Today, quotations against SHFE aluminum were basically at a discount of 30 yuan/mt against the August contract. In east China today, the selling sentiment index was 3.13, up 0.03 from the previous day; the buying sentiment index was 2.96, up 0.10. In central China, trading atmosphere held at the level of the previous two days. Trading firms engaging in both spot and futures market purchased aggressively to profit from price spreads. Amid large discounts, suppliers showed increasingly strong willingness to hold prices firm and hold back from selling, driving continuous climbs in market quotes. Eventually, the actual transaction price range in central China was centered around a discount of 140-170 yuan/mt against the SHFE August contract. Today, the selling sentiment index in central China was 2.97, down 0.02 from the previous day; the buying sentiment index was 2.96, up 0.02. Aluminum prices shot up today, and the spot market was exceptionally firm. Arrivals tightened further and inventory destocking was significant. Suppliers, especially those above designated size, generally held firm bullish views and sold while holding prices firm. The absolute price surge prompted a small number to lower discounts and sell first without causing much impact, with quotations between -10 and +10 and overall slightly tight availability. Downstream was unable to chase highs, and just-in-time procurement also came under pressure and weakened; however, traders remained highly active in entering the market to purchase, gradually shifting from pushing for lower prices and only buying at discounts to also buying at premiums, with notable transactions.

Aluminum scrap: Today, SMM A00 spot aluminum closed at 23,800 yuan/mt, up another 110 yuan/mt from the previous trading day. China's aluminum scrap market prices mostly remained stable with a wait-and-see attitude, with only some varieties in east China edging higher. Regarding price differences, on August 6, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,240 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,030 yuan/mt. Marginal weakening of secondary aluminum alloy and its downstream demand, coupled with high inventories of wrought aluminum alloy scrap raw materials such as doors and windows in regions like Henan, blocked the price transmission mechanism for aluminum scrap, with follow-through upward momentum clearly insufficient. Affected by the traditional consumption off-season, the operating rate of downstream cast aluminum alloy enterprises continued to decline, order volumes shrank, and the aluminum scrap market lacked substantial support. Looking ahead, the supply-demand mismatch pattern is unlikely to reverse in the short term; scrap utilization enterprises will most likely maintain a strategy of purchasing as needed and low inventory operations, and market trading sentiment is unlikely to see substantial improvement. Shredded aluminum tense scrap priced based on aluminum content is expected to be dragged down by raw material price stalemates and weak downstream demand next week, remaining under pressure overall, with the mainstream trading range expected to consolidate around 20,200-20,800 yuan/mt.

Secondary Aluminum Alloy:Spot Market: ADC12 market quotes were mostly stable today, with a still-cautious pace of price adjustments. As aluminum prices rose, cost support further strengthened, and enterprises' willingness to hold prices firm increased somewhat. However, constrained by limited end-use demand recovery, most enterprises still chose to wait and see, with relatively restrained quote adjustments. Meanwhile, futures backwardation widened; recently, the inquiry activity of spot-futures traders has increased noticeably, some traders have begun to gradually purchase, and market trading sentiment improved compared to the previous period. In the short term, amid relatively strong cost support and still mediocre demand, ADC12 prices are expected to remain rangebound.

Comprehensive Outlook:Divergence persists over the Middle East situation; the US Fed did not raise interest rates in July but maintained a generally hawkish stance. With the fundamental deficit continuing and aluminum ingot inventories persistently destocking, short-term aluminum prices are expected to consolidate on a strong note. Future focus should be on the progress of production resumptions in the Middle East and the dynamics of new project commissioning plans.

[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 independent judgment. Any decisions made by clients are not related to SMM.]