Aluminum prices to face short-term pressure due to weakening fundamentals

Macroeconomic: Last week, the macroeconomic environment was intertwined with bullish and bearish factors. At the beginning of the week, the US Fed postponed interest rate cut expectations, allowing aluminum prices to pull back. However, the U.S. CPI data came in lower than expected, re-igniting interest rate cut expectations. Additionally, continuous domestic support for the real estate market boosted the domestic economy, while the European Union issued preliminary results of its anti-subsidy investigation on Chinese electric vehicles, increasing uncertainty in the overseas market.

Last week, the operating aluminum capacity in China stabilized, with no significant increase in daily output WoW. The total production capacity currently stands at 42.96 million mt, and there have been no news of large-scale production halts or resumptions. During the week, spot aluminum prices in China fluctuated within a narrow range, and other raw materials and auxiliary material prices stabilized. As of Jun 13, SMM estimates the real-time cost of domestic aluminum at 18,009 yuan/mt, up 18 yuan/mt WoW. Primary aluminum prices saw a sharp drop during the week, and the profits of aluminum smelters continued to decline. As of June 13, the real-time profit of smelters was about 2,650 yuan/mt, down 549 yuan/mt. Imports: The loss on aluminum ingot imports narrowed, but imported aluminum ingots remained sparse in the domestic market. Given that the import window remained closed, it is expected that imported aluminum ingots will mainly came from long-term orders overseas. Last week, the operating rates of domestic end-user enterprises continued to remain low. Due to the decline in PV module scheduled production and the off-season in the construction industry, new orders for aluminum processing enterprises such as aluminum extrusion performed poorly, leading to a further decline in operating rates. Despite the pullback in spot aluminum prices, the stockpiling enthusiasm of end-user enterprises was not high, resulting in a smaller decline in aluminum ingot inventory. As of June 13, aluminum ingot inventory had only decreased by about 1,000 mt from June 11.

From a technical perspective, the model predicts that the price range of SMM A00 aluminum average price will be [20,175, 21,300] from June 13 to June 19, the price center will be 20,760, the unit is yuan/mt, the extreme price range will be [19,740, 21,820], the normal price range will be [20,030, 21,470], and the conservative price range will be [20,320, 21,130]. The price is expected to move sideways or go down. The support range will be [20,030, 20,320], and the resistance range will be [21,130, 21,470]. The model predicts that the price range of the most-traded SHFE aluminum contract will be [20,530, 21,485], with the price center of 20,970, and the unit is yuan/mt. The extreme price range will be [20,050, 21,880], the normal price range will be [20,370, 21,620], and the conservative price range will be [20,690, 21,350]. The price is expected to move sideways or go down this week. The support range will be [20,370, 20,690], and the resistance range will be [21,350, 21,620].

On the macro front, the US May CPI data was lower than market expectations. After the data was released, the market anticipated that the US Fed might cut interest rates for the first time in November. The US Fed kept interest rates unchanged at its June meeting, resulting in a mixed market sentiment. The US dollar index fluctuated widely under this background. Moreover, the European Union announced that it would impose an additional tariff of up to 38.1% on electric vehicles imported from China starting next month, further suppressing macro sentiment. On the fundamentals, the operating aluminum capacity in China remains high. Although the State Council issued carbon reduction policies, they have not yet affected the production capacity. We need to keep a close eye on whether specific policies will be implemented. In terms of downstream demand, the market is gradually entering the off-season, with orders from end-user sectors such as automobiles and photovoltaics beginning to weaken, and production at aluminum processing enterprises also trending downward. In the short term, recent fluctuations in domestic and overseas economic data affected market sentiment, with risk aversion being relatively strong. Before the US Fed's September meeting, market sentiment on the macro front is likely to weaken, and the trading logic of the aluminum market may be more re-dominated by fundamentals. On the fundamentals, the supply and demand relationship shows a marginal weakening trend. SMM predicts that domestic aluminum prices are likely to face downward pressure this week. Based on SMM's quantitative model data, SMM predicts that the most-traded SHFE aluminum contract price will fluctuate between 20,370-21,350 yuan/mt this week, while LME aluminum prices may move between $2,460-2,620/mt. We need to keep a close eye on changes in the SHFE/LME price ratio and demand changes.