Macro: From June 12 to July 10, the macro front was relatively neutral. The Fed's interest rate cut expectations were still wavering, having little impact on market sentiment. The Chinese government continued to boost economy and the real estate market. Uncertain regional conflicts may have a strong short-term impact on the macro front.
Supply: In June, the operating capacity of domestic aluminum smelters continued to grow. The resumption of production in Yunnan was basically completed, with only 100,000 mt remaining to be resumed, expected to be completed in July. By the end of June, the operating capacity of domestic aluminum smelters had reached 43.24 million mt, up 280,000 mt MoM. The average daily output of domestic aluminum smelters hit a record high of 118,400 mt, with a total output of 3.553 million mt in June, up 5.6% YoY. In July, the operating capacity of domestic aluminum is expected to reach 43.4 million mt, with a YoY output growth of 3.2%. Although the growth rate of domestic supply slowed, it remained at a high level for the same period in history. In terms of imports, the domestic import window remained closed, and the net import volume of aluminum ingots in May showed a significant decline. Customs data showed that the net import volume of primary aluminum in May was about 151,000 mt, down 26.8% MoM, up 141.7% YoY. From January to May, the total net import volume of primary aluminum was 1.077 million mt, up 189.8% YoY. In June, the net import volume was expected to continue to decline MoM to around 120,000 mt. The significant increase in domestic supply, together with the supplement of overseas aluminum ingots, led to poor destocking of domestic aluminum ingots in June, with social inventories remaining around 770,000 mt, at a high level for the same period in the past three years.
Downstream: In June, the operating rate of domestic downstream continued to weaken. By sector, orders for construction extrusion and aluminum curtain walls declined significantly. With high aluminum prices, end-users were less willing to place orders, and companies had no orders to fulfill, leading to high finished product inventories in the industry. The aluminum used in automobiles and 3C was moderate, but high aluminum prices also caused some companies to delay placing orders. The operating performance of the wire and cable industry was generally positive in June, with active procurement by the State Grid and increased demand for aluminum wire and cable driven by the advancement of new energy power grid connections. It is expected that the operating rate of aluminum wire and cable will remain high in July. In terms of aluminum semis exports, the current price spread between domestic and overseas markets and the exchange rate are favorable for domestic aluminum semis exports. However, recent tariffs and anti-dumping investigations by the US and other countries on Chinese aluminum semis affected the domestic aluminum semis export market. In May, the total export volume of domestic aluminum semis decreased by 2.8% MoM to 481,000 mt. It is expected that in Q3, the export volume will continue to decline MoM due to the off-season for overseas demand and the impact of tariffs.
From a technical perspective, the most-traded SHFE aluminium contract is expected to move range-bound. Based on time series models and neural network models, other price and inventory trends for next month are also predicted:
1. The average price of SMM A00 aluminum is expected to move range-bound or swing on a strong note; 2. SHFE aluminum prices are expected to move range-bound; 3. The social inventory of aluminum ingots in China is expected to slightly increase; 4. The regional inventory of aluminum billets in China is expected to slightly increase.
Machine learning models predict that most-traded SHFE aluminium contract to move rangebound or swing on a strong note. The ensemble model (including linear and nonlinear) predicts the price range of the most-traded SHFE aluminium contract to be [20,020, 20,920], with an extreme range of [19,770, 21,310]. Additionally, the net buying intensity index for spot prices reached a nearly 130-day high on July 1, indicating a bullish signal. In terms of futures technical indicators, the most-traded SHFE aluminium contract may move rangebound. Based on the weekly K-line, there are 43 technical indicators, with 24 neutral, 7 bullish, and 12 bearish. From June 12 to July 10, the signals are mainly range-bound, with more bearish signals than bullish ones, indicating some pressure on prices. Combining machine learning and technical indicators, the prices are expected to be range-bound. The price is expected to find support in the range of [19,800, 20,000], and meet resistance in the range of [20,900, 21,300].
Summary: From July 11 to August 10, on the macro side, Fed Chairman Powell mentioned in his speech to Congress that the US economy is "no longer overheating," and the market expects a rate cut in September. However, the Fed's statements have been inconsistent, and the US dollar index remains high, suppressing the performance of the metals market prices. Attention should still be paid to overseas inflation data in June, as risk aversion sentiment rises. Domestically, the CPI in June rose 0.2% YoY and fell 0.2% MoM, indicating mild inflation pressure. The Third Plenary Session of the Central Committee will be held in mid-July, and future policies may have a boosting effect. On the fundamentals side, the operating capacity of domestic aluminum remained high in July, with significant YoY growth in apparent consumption. However, due to the decline in demand from the real estate and photovoltaic sectors, growth was lower than expected. The social inventory of aluminum ingots in China showed poor destocking, and the profitability of the aluminum processing industry was poor, leading to low production enthusiasm and difficulty in increasing the operating rate. The fundamental was weak. SMM expects domestic aluminum prices in July to move rangebound, with the most-traded SHFE aluminium contract fluctuating in the range of 19,800-20,900 yuan/mt. Attention should be paid to macro sentiment and changes in aluminum consumption domestically and abroad.
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