SMM August 27 news:
1. Macro Perspective
The US-Iran situation saw a temporary easing, with market expectations for restored strait navigation rising. International oil prices pulled back for three consecutive days, and the geopolitical risk premium continued to fade. However, the outlook for US-Iran negotiations remains uncertain, and regional instability has not been completely eliminated. The Jackson Hole Symposium will be held from August 27 to 29, where Fed Chairman Warsh will deliver his first major policy speech in office. The market is closely watching his remarks on inflation and the rate hike path. The US July PCE price index came in slightly above expectations, with core PCE remaining sticky. Annual inflation stayed at 3.7%, and the probability of a September rate hike implied by federal funds futures rose to around 40%, while a December rate hike has been fully priced in by the market. Driven by rising rate hike expectations, the US dollar index rose, and the strong dollar exerted some pressure on the nonferrous metals sector.
2. Fundamentals
In overseas markets, aluminum production resumptions and new capacity outside China continued to ramp up as planned, while damaged capacity in the Middle East is gradually recovering. The market’s expectation of the global aluminum market shifting from tight to loose in the long term persists, continuing to cap the upside room for aluminum prices. However, LME visible inventory currently remains at a historically low level of around 250,000 mt, and such low inventory provides bottom support for LME aluminum. As oil prices pulled back, smelting energy costs outside China edged down, weakening cost support for aluminum prices. The improvement in spot premiums was only moderate, and bulls lacked sustained momentum to push higher.
In the Chinese market, on the inventory front, China’s aluminum social inventory continued its destocking trend, falling to the level of 852,000 mt and displaying counter-seasonal destocking characteristics, which provides strong support for aluminum prices. On the demand side, currently, operating rates at downstream processing enterprises remain at neutral levels. As the traditional September peak season approaches, the market expects subsequent demand improvement. However, downstream pre-stocking is limited; the market is still waiting to see how actual demand materializes during the peak season, and spot transactions are mainly based on rigid demand.
3. Comprehensive View
Overall, macro headwinds on aluminum prices have strengthened somewhat recently. Policy uncertainty from the Jackson Hole Symposium and Warsh’s first speech, the strengthening US dollar index coupled with rising rate hike expectations, and simultaneously, the fading US-Iran geopolitical risk premium and the oil price pullback together form resistance for aluminum prices. However, continuous destocking in China and the approaching September peak season expectations provide strong support at lower levels. Amid interwoven bullish and bearish factors, aluminum prices are expected to continue to consolidate at highs next week. The most-traded SHFE aluminum contract is expected to trade in the range of 23,400-24,100 yuan/mt next week, while LME aluminum is expected to trade in the range of $3,150-3,280/mt.
[The information provided is for reference only. This document does not constitute direct advice for investment research decisions. Clients should make cautious decisions, not replace independent judgment with this, and any decisions made by clients are unrelated to SMM.]
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