Aluminum prices to remain weak in the short term, keeping an eye on inventory changes

This week, the macroeconomic front was intertwined with both positive and negative factors. US Fed officials have been making frequent statements, and the delay in interest rate cut expectations drove aluminum prices down. The Chinese government said that the domestic economy is gradually resuming, and the central bank governor announced the launch of a set of real estate support policies to accelerate the destocking of existing housing through market-oriented methods. Meanwhile, the situation in the Middle East is becoming increasingly intense, Ukraine's accession talks were about to start, and Russia and the DPRK signed a comprehensive strategic partnership treaty. The increasingly complex international environment brought significant uncertainty to macroeconomic sentiment.

This week, the operating capacity of domestic aluminum was approximately 43 million mt, with the increase mainly coming from the resumption of production in Yunnan, while the capacity in other regions stabilized. In terms of aluminum costs, the domestic spot alumina market prices saw a slight decline, and both Yunnan and Sichuan entered the rainy season, leading to a WoW decrease in electricity costs for enterprises. The electricity cost for the domestic aluminum industry in June decreased by 0.03 yuan/kWh MoM to 0.426 yuan/kWh. As of June 20, SMM estimated the real-time cost of domestic aluminum at 17,906 yuan/mt, down 8 yuan/mt WoW. During the week, spot prices of primary aluminum remained weak, and domestic aluminum profits continued to decline. As of June 20, the real-time profit of domestic aluminum was about 2,489 yuan/mt, down 202 yuan/mt WoW. On the import, overseas aluminum ingot circulation remained tight, and it is understood that the aluminum premium at Japanese ports in Q3 is expected to rise to $185/mt. According to the latest customs data, China’s net import volume of primary aluminum in May was about 151,000 mt, down 26.8% MoM and up 142% YoY. It is expected that the net import volume will continue to decline in June as the import window closes. In terms of demand, the operating rate of domestic downstream aluminum industry remained weak, and the continuous decline in aluminum prices stimulated some downstream restocking activities, leading to a reduction in social inventory. However, new orders from end-users have not improved, and under pessimistic expectations, holders were actively selling, expanding the discount in the spot market.

The model predicts that the SMM A00 spot aluminum average price will move between 20,190-20,835 yuan/mt from this Friday to next Thursday, with a price center of 20,480 yuan/mt. The extreme price range is expected to be between 19,850-21,130 yuan/mt, the normal price range between 20,080-20,930 yuan/mt, and the conservative price range between 20,300-20,740 yuan/mt. Next week, prices are expected to move sideways or swing on a soft note. The support range is between 20,080-20,300 yuan/mt, and the pressure range is between 20,740-20,930 yuan/mt. The model predicts that the most-traded contract closing price will trade between 20,020 and 21,005 yuan/mt from June 21 to June 27, with a price center of 20,490 yuan/mt. The extreme price range is expected to be between 19,570 and 21,390 yuan/mt, the normal price range between 19,870 and 21,130 yuan/mt, and the conservative price range between 20,170 and 20,880 yuan/mt. Next week's price trend is expected to move sideways or swing on a soft note. The support range is between 19,870 and 20,170 yuan/mt, and the pressure range is between 20,880 and 21,130 yuan/mt.

Overall, from a macro perspective, the US Fed remained hawkish, and market expectations for rate cuts are postponed. Domestic real estate data for May showed that both the floor area of completed housing construction and new construction area were down over 20% YoY, leading to a decline in market expectations for rebar consumption. On the fundamentals, domestic aluminum operating capacity remains high, with recent improvements in conversion margins for aluminum billets and a rebound in aluminum liquid alloying ratio, dragging down ingot production. In terms of downstream demand, new orders in end-user sectors such as photovoltaics and automobiles decreased, and the operating rate of aluminum processing enterprises remains sluggish. However, the pullback in aluminum prices stimulated downstream restocking, leading to a reduction in social inventory of aluminum, and apparent consumption remains relatively good, though there is a divergence with the weak downstream operating rate. Market sentiment is cautious, and aluminum prices may experience wide fluctuations. SMM expects the most-traded SHFE aluminum contract price to fluctuate between 19,870-20,880 yuan/mt next week, while LME aluminum prices may range between $2,450-2,580/mt. Future attention should be paid to changes in the SHFE/LME price ratio and demand both domestically and internationally.