Aluminum prices to move rangebound due to positive macro front but weak fundamentals

This week, the macro front improved. Firstly, the Chinese government continued to make statements to boost the domestic economy. Later, Fed Chairman Powell indicated that if the data meets the requirements, the earliest rate cut could be in September, further strengthening rate cut expectations. Meanwhile, the death of a Hamas leader escalated tensions in the Middle East, driving a sharp rise in gold and commodity prices.

Basic situation: This week, the operating capacity of domestic aluminum stayed largely stable. The capacity awaiting resumption in Guizhou has not yet completed technical upgrades, with the resumption time expected around October to November. In the short term, we need to continue to pay attention to the resumption situation in Sichuan. Cost side, the domestic aluminum cost slightly decreased this week, mainly due to regions like Yunnan entering the rainy season, significantly increasing the proportion of hydropower used by aluminum plants, and electricity prices have been adjusted downwards. As of August 1, the average electricity cost for domestic aluminum was about 0.411 yuan/kWh, down 0.015 yuan/kWh from a week ago. Additionally, the price of prebaked anodes decreased compared to last month, which also contributed to the decline in the real-time cost of aluminum. As of August 1, the total real-time cost of domestic aluminum was about 17,666 yuan/mt, down 246 yuan/mt WoW. This week, domestic spot aluminum prices swung on a soft note, and industry profitability slightly improved due to the cost decline. As of August 1, the average profit of domestic aluminum was about 1,503 yuan/mt, up 215 yuan/mt WoW. Import side, the loss on domestic primary aluminum imports narrowed this week, with sellers adopting a wait-and-see attitude, and the market circulation of imported primary aluminum remained tight. We need to continue to pay attention to the price spread between the two regions. Demand side, the operating rate of domestic downstream aluminum sector remained weak this week, with some regions taking high-temperature holidays, and market demand remained sluggish. During the week, aluminum prices fell below 19,000 yuan/mt, with some end-users restocking, but overall weak demand kept the social inventory of aluminum ingots accumulating, making it difficult for spot discounts to narrow.

The model predicts that the SMM A00 aluminum average price will range between 18,510-19,235 yuan/mt from August 2 to August 8, with a price center of 18,920 yuan/mt. The extreme price range is 18,180-19,550 yuan/mt, the normal price range is 18,400-19,340 yuan/mt, and the conservative price range is 18,620-19,130 yuan/mt. Next week, the prices are expected to pull back after an initial rise or swing on a strong note. The support range is 18,400-18,620 yuan/mt, and pressure range is at 19,130-19,340 yuan/mt. The model predicts that the most-traded aluminum contract closing price will range between 18,550-19,435 yuan/mt from August 2 to August 8, with a price center of 19,040 yuan/mt. The extreme price range is 18,130-19,850 yuan/mt, the normal price range is 18,410-19,570 yuan/mt, and the conservative price range of is 18,690-19,300 yuan/mt. Next week, prices are expected to shoot up and fall back or swing on a strong note. The support range is [18,410, 18,690], and the resistance range is [19,300, 19,570].

In summary, macro side, the US Fed's interest rate meeting concluded, and market expectations for a rate cut in September strengthened. Additionally, the escalation of tensions in the Middle East increased risk-averse sentiment among bears. The domestic Politburo meeting set the economic targets for H2, with macro policies continuing to exert force, improving market expectations for H2 consumption. Fundamentals side, domestic supply maintained a slow upward trend, and the import window showed signs of opening, maintaining an increase expectation on the supply side. However, the demand side is in the off-season, and end-users need further demand stimulation to transmit orders to the aluminum processing industry. After a prolonged decline in aluminum prices, the cost side of domestic aluminum provided support. With improved future consumption expectations and limited domestic supply increase, the short-term aluminum market may move rangebound due to macro sentiment. SMM expects the most-traded SHFE aluminum contract to fluctuate between 18,690-19,570 yuan/mt next week, and LME 3M aluminum to fluctuate between $2,200-2,350/mt. We need to continue to pay attention to domestic and overseas downstream consumption and changes in macro sentiment.