Rising Hawkish Expectations for the US Fed Put Aluminum Prices Under Pressure and in the Doldrums [SMM Aluminum Morning Meeting Minutes]

5.28 SMM Morning Meeting Minutes

Futures:SHFE aluminum's most-traded contract opened at 24,350 yuan/mt during the night session on May 27, with the highest price at 24,405 yuan/mt, the lowest price at 24,205 yuan/mt, and finally closed at 24,275 yuan/mt, down 0.86% from the previous close. The night session overall continued its fluctuating trend in the doldrums. The price clearly fell below the MA5 (24,411.94), MA10 (24,450.79), and MA20 (24,495.60) moving averages, while remaining under pressure below the MA40 (24,576.72) and MA60 (24,615.24), with short-, medium-, and long-term moving averages maintaining a bearish alignment, indicating a further deepening of the market's weak pattern. The night session trading volume was 117,000 lots, a decrease of 41,000 lots; open interest was 293,000 lots, an increase of 5,000 lots. The futures exhibited a "bears adding positions" characteristic, indicating that bearish capital continued to actively enter the market to exert pressure. Technical side, the 4-hour MACD indicator showed DIFF (-63.61) and DEA (-64.24) maintaining a golden cross structure, but the red bars shortened notably (STICK: 1.27), indicating that the previous rebound momentum had clearly weakened, with insufficient bullish recovery strength. On May 27, LME aluminum opened at $3,675.5/mt, reached a high of $3,700/mt, a low of $3,612/mt, and finally closed at $3,627.5/mt, down 1.28%, with a notable pullback from highs. Although the price still traded above the MA5 (3,640.67), MA10 (3,623.97), MA20 (3,594.62), MA40 (3,534.33), and MA60 (3,470.50) moving averages, it had already fallen below the MA5 in the short term, indicating that the pace of the rally at high levels slowed down somewhat. The overall bullish trend was not yet broken, but short-term technical adjustment pressure existed. Trading volume was 20,161 lots, a decrease of 1,496 lots; open interest was 671,000 lots, a decrease of 1,388 lots. The futures showed signs of "bulls reducing positions," with some capital taking profits at high levels. On the technical side, the MACD indicator maintained a golden cross structure, but the red bars narrowed notably (STICK: 4.35), indicating that upward momentum was marginally weakening.

Macro front:US Fed Vice Chair Jefferson stated that he expected inflation to cool later this year as the effects of tariffs and rising energy costs fade, but he warned that inflation risks still skew to the upside. US Fed Governor Lisa Cook said in a speech at a Stanford University event on Wednesday local time that inflation was heading in the wrong direction, and she was prepared to raise interest rates if this continues. Although Cook indicated that she currently favored keeping borrowing costs unchanged and expected price growth to cool again in the coming months, her remarks aligned her with the views of many US Fed officials that accelerating inflation is now a greater policy concern than the labour market. According to CME "FedWatch": the probability of the US Fed maintaining interest rates unchanged through June was 99.9%, with a 0.1% probability of a cumulative 25 basis point cut. The probability of the US Fed maintaining interest rates unchanged through July was 91.4%, with an 8.5% probability of a cumulative 25 basis point hike.

Fundamentals:Data from the National Bureau of Statistics (NBS) showed that from January to April, total profits of China's above-scale industrial enterprises reached 2,435.84 billion yuan, up 18.2% YoY, with profits in the non-ferrous metal smelting and rolling processing industry up 1.2 times YoY. SMM statistics showed that alumina projects under construction and under planning in Guinea have exceeded 11.4 million mt/year in scale, with new capacity expected to be gradually released after 2028. In terms of project structure, Chinese-funded enterprises remain the main driving force, with multiple projects equipped with supporting mines, power plants, and port construction, showing obvious industry chain integration characteristics. Inventory side, on Thursday this week, aluminum ingot inventory in China's mainstream consumption areas was 1.401 million mt, destocking 10,000 mt from Monday this week, and destocking 11,000 mt WoW from last Thursday.

Primary aluminum market:In early trading, the SHFE aluminum 2606 contract traded in a range, with the overall price center moving higher compared to the previous trading day. Bullish sentiment was strong in the market, with buying sentiment from downstream and traders rebounding. This pushed sellers to raise offer prices, and transaction prices moved higher. The overall market trading atmosphere improved. Mainstream spot market quotes were at SMMA00 average price to +10 yuan/mt. Yesterday, the east China market shipments sentiment index was 3.03, down 0.01 MoM; the procurement sentiment index was 3.26, up 0.09 MoM. Yesterday, trading in the central China market remained sluggish. The Henan-Shanghai price spread was relatively small and higher than long-term contract prices. Downstream processing enterprises had low buying sentiment, preferring long-term contract settlement. Combined with rising futures aluminum prices, the overall market trading atmosphere was subdued. Additionally, affected by insufficient invoice quotas, traders preferred trading with cargoes with invoices dated this month, while next-month invoice transactions were weaker. Ultimately, the actual transaction price range in the central China market was between central China price parity and central China price minus 20 yuan/mt. Yesterday, the central China market shipments sentiment index was 2.83, up 0.01 MoM; the procurement sentiment index was 2.25, flat MoM.

Aluminum scrap:Yesterday, the SMM A00 price rose 310 yuan/mt from the previous trading day, and the aluminum scrap market followed the uptrend overall. Operating rates at scrap utilization enterprises remained at low levels, end-user orders lacked follow-through, overall procurement pace trended conservative, and market trading was sluggish. The aluminum scrap market is expected to continue holding up well at high levels this week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) maintained at 20,500-21,100 yuan/mt (tax-exclusive). On the policy side, "reverse invoicing" regulation continues, and the tight pattern of compliant supply sources is difficult to reverse in the short term; the lagging effect of imported aluminum scrap continues to emerge, with actual port arrivals contraction expected to further intensify tight supply conditions; geopolitical risks provide bottom support for aluminum prices, which in turn pushes up aluminum scrap prices. However, the peak season effect has fully wound down, and end-user orders have weakened. In regions such as Henan, wrought aluminum alloy scrap inventory remains elevated, suppressing procurement demand, and the secondary aluminum market is expected to continue its supply and demand dual-weakness trend.

Secondary aluminum alloy:Spot cargo: Yesterday, the ADC12 market saw a slightly stronger recovery, with most enterprises raising quotes by 100-200 yuan/mt. As invoice sources remained tight, market concerns over subsequent alloy ingot supply contraction intensified, availability of low-priced cargo decreased notably, and suppliers showed stronger willingness to hold prices firm. High aluminum scrap procurement costs provided cost support for ADC12 prices. However, downstream demand recovery remained relatively limited, with no significant improvement in end-user orders, and the short-term price increase was mainly driven by costs and the supply side. ADC12 market is expected to hold up well within a narrow range in the short term, with subsequent attention needed on raw material supply and actual demand follow-through.

Aluminum market summary:On the macro front, ex-China inflation resilience remained strong, and US Fed officials continued to release hawkish signals. Vice Chair Jefferson indicated that inflation is still expected to pull back before year-end, but emphasized that upside risks have not fully receded. Governor Cook pointed out that the current inflation improvement has fallen short of expectations and did not rule out further policy tightening if necessary, indicating that the US Fed's policy center remains tilted toward controlling inflation. Against this backdrop, market expectations for the timing of interest rate cuts continued to shift later, with "higher rates for longer" gradually becoming the consensus. The US dollar and US Treasury yields held up well, exerting some pressure on non-ferrous metal prices. Fundamentals side, the ex-China aluminum market continued to see tight spot cargo conditions, with LME aluminum inventory remaining at low levels and cancelled warrants continuing to grow, reflecting tight available cargo. Meanwhile, Japan's Q3 spot aluminum premiums were further raised, also indicating resilient Asian spot demand. Multiple factors jointly supported LME aluminum performance. China side, driven by improved export margins, aluminum semis exports recovered, and are expected to remain at a relatively high level in the short term. However, the pace of domestic inventory drawdown remained slow, spot cargo transactions were lackluster, and downstream procurement remained cautious, limiting SHFE aluminum upside room. Overall, aluminum prices are expected to continue moving sideways in the short term, with LME outperforming SHFE.

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