Geopolitical Disruptions Combined with High Inventory Highlight LME Outperforms SHFE Pattern in Aluminum Market [SMM Aluminum Morning Meeting Minutes]

5.7 SMM Morning Meeting Minutes

Futures:The most-traded SHFE aluminum 2606 contract closed at 24,500 yuan/mt in the night session, down 0.77%. The price fell below MA5 (24,577.00) and MA10 (24,753.50) but remained above MA30 (24,675.83) and MA60 (24,504.42), with short-term moving averages forming resistance while medium-term support held. The MACD indicator DIF (-3.1813) crossed below DEA (73.6112), with the histogram turning negative (-153.5851), forming a death cross, indicating continued weakening of bullish momentum. The suggested core trading range for SHFE aluminum is 24,100-24,800. LME aluminum 3M closed at $3,535.5/mt, up slightly by 0.06%, moving sideways. The price traded above MA60 (3,365.47) and MA30 (3,498.33) but below MA10 (3,542.45) and MA5 (3,526.30), with short-term moving averages forming resistance while medium-term support remained intact. The MACD indicator DIF (32.3118) crossed below DEA (46.4354), with the histogram turning negative (-28.2472), forming a death cross, indicating continued exhaustion of upward momentum. The suggested core trading range for LME aluminum is 3,400-3,560.

Macro front:US President Trump stated that the Iran situation is "very likely to end" and said both sides are close to reaching a deal, which may include Iran shipping its highly enriched uranium to the US. When asked about the specific timeframe for a deal, Trump estimated "one week." Trump also announced that the "freedom plan" to "facilitate" vessel passage through the Strait of Hormuz would be suspended in the short term. The Islamic Revolutionary Guard Corps Navy stated that with the threat from aggressors eliminated, new protocols have taken effect to ensure safe and stable passage of vessels through the Strait of Hormuz, though permission is required for transit.

Fundamentals:Supply side, as the traditional peak consumption season continued, downstream sectors such as plate/sheet, strip and foil, and aluminum wire and cable provided effective demand support. The proportion of liquid aluminum in China edged up, with the monthly ratio rising 1.7 percentage points MoM to 75.3%. Overall performance was slightly below expectations at the beginning of the month, with the core drag coming from weaker-than-expected aluminum extrusion orders. Based on SMM's liquid aluminum proportion calculation data, China's aluminum casting ingot volume in April declined 3.4% YoY and 9.0% MoM. Demand side, China's aluminum processing composite PMI registered 53.9% in April, still above the 50 mark but pulling back notably from the March high. Overall industry prosperity weakened at the margin, shifting from broad-based recovery to structural divergence. New energy and packaging demand remained supportive, while real estate, automotive, and some export-linked segments recovered below expectations, and high aluminum prices also suppressed procurement and order release. Overall, the "Silver April" effect continued but momentum weakened, with the industry trending toward a rational correction. Inventory side, as of Wednesday this week, aluminum ingot inventory in major consumption areas in China stood at 1.456 million mt, up 24,000 mt WoW from pre-holiday levels.

Primary aluminum market:Yesterday morning, the SHFE aluminum 2605 contract fluctuated higher, with the overall price center rising from the previous trading day. Yesterday, some sellers had not fully resumed operations, coupled with invoicing constraints, market trading shipments contracted. On the first trading day after the holiday, downstream buyers adopted a strong wait-and-see sentiment, and purchase willingness cooled. Dragged by weak spot buying, mainstream transactions concentrated around SMM A00 aluminum minus 10 yuan/mt to the average price. Yesterday, the east China market shipment sentiment index was 2.67, down 0.08 WoW; the purchase sentiment index was 2.8, down 0.1 WoW. On the first day after the Labour Day holiday, overall trading in the central China market was sluggish. Concerns among traders and downstream players over insufficient invoice quotas limited trading volume, and buying sentiment was subdued, but suppliers showed strong willingness to hold prices firm. In the early session, overall offers stayed high before gradually declining. The invoiced transaction amount on the day was slightly higher than the concentrated month-end invoicing prices. Ultimately, actual transaction prices in the central China market ranged from parity to a premium of 20 yuan relative to the central China price. Yesterday, the central China market shipment sentiment index was 2.83, down 0.01 WoW; the purchase sentiment index was 2.28, down 0.04 WoW.

Aluminum scrap:Yesterday, spot primary aluminum rose 140 yuan/mt from the previous trading day, while aluminum scrap prices adjusted unevenly, with clients in some regions choosing to wait and see without adjusting their quotes. Affected by the Labour Day holiday, most aluminum scrap yards arranged 1-2 days off. As of yesterday, the aluminum scrap purchase pace remained generally stable compared to April. The tightening trend on reverse invoicing remained unchanged, with compliance costs for aluminum scrap recycling staying elevated. Yard suppliers held back from selling and held prices firm, and the tight availability of invoiced spot cargo in circulation was unlikely to ease in the short term. Moreover, some traders saw their invoicing quotas decline, resonating with reverse invoicing restrictions and exacerbating the structural shortage of compliant supply. LME aluminum scrap prices continued to rise, squeezing import traders' margins, with purchase sentiment turning notably cautious. Subsequent imports were expected to pull back, and the previous supplementation of domestic supply through imports was set to weaken marginally, likely further reinforcing the tight supply situation. Price difference between A00 aluminum and aluminum scrap side, on May 6, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was recorded at 2,723 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,078 yuan/mt. In the first week after the Labour Day holiday, China's aluminum scrap market was expected to remain in the doldrums at elevated levels, with the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) expected to stay around 20,700-21,300 yuan/mt (tax exclusive). Supply-side policy constraints continued, and imported aluminum scrap volumes are expected to decline, weakening supply replenishment. However, as the peak season winds down, demand for aluminum tense scrap remained persistently weak, and incremental end-user orders are expected to be limited. In the short term, attention should be paid to the progress of US-Iran negotiations, the implementation of invoice and reverse invoicing policies, and the recovery of post-holiday orders at scrap utilization enterprises.

Secondary aluminum alloy:Spot cargo side, ADC12 market price adjustments diverged yesterday. Some enterprises attempted to slightly raise their quotes driven by the recovery in futures, but overall upward momentum for increases was insufficient, with most enterprises adopting a wait-and-see approach with stable prices. Meanwhile, a few enterprises chose to lower prices due to weak post-holiday demand and pressure from previously high quotes. The post-holiday market remained in a tug-of-war between weak demand and cost support, with limited improvement in transactions. ADC12 prices are expected to move sideways in the short term, with insufficient upward momentum.

Aluminum market summary:Internationally, affected by the ongoing geopolitical conflicts in the Middle East, navigation through the Strait of Hormuz was restricted, regional aluminum capacity saw production cuts, the global aluminum supply deficit intensified, and the supply-demand gap for ex-China aluminum became prominent. This strongly supported LME aluminum prices to hold up well, with tight supply, high costs, and a positive sentiment in the overseas aluminum market. In China, downstream processing enterprises showed sluggish recovery in operating rates, persistently high aluminum prices continued to suppress end-user purchase willingness, and domestic social inventory stayed high. Overall, the core pattern of LME outperforming SHFE in the short-term aluminum market is difficult to reverse. Strength in LME will support room for SHFE aluminum to catch up after the holiday, but high domestic inventory and weak demand will cap overall gains. Going forward, key focus should be on the destocking pace of domestic aluminum ingots and the intensity of rigid demand release from downstream production resumptions.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make prudent decisions and not use this as a substitute for independent judgment. Any decisions made by clients are not related to SMM.]