Aluminum prices likely to fall amid poor fundamentals

The macroeconomic aspect was relatively stable last week, with no significant fluctuations. Domestically, the Chinese government continued to make efforts to boost demand. The NDRC and four other departments issued a notice on "Measures to Create New Consumption Scenarios and Cultivate New Growth Points in Consumption." Beijing further optimized its real estate policies. Overseas, the US Fed's stance on interest rate cuts remains unclear and requires continuous observation. Trade frictions between Europe, Canada, and China resurfaced, and escalating local conflicts retained significant uncertainty in the short-term macroeconomic aspect.

Last week, the operating capacity of domestic aluminium was approximately 43.1 million mt, with the increase mainly coming from the resumption of production in Yunnan and the commissioning of some electrolytic cells from the new capacity in Inner Mongolia. As of June 27, Huayun Phase III in Inner Mongolia has put more than 70 electrolytic cells into operation, and the company reports smooth progress, with the remaining awaiting green electricity support. In terms of aluminium costs, the overall prices of domestic aluminium raw and auxiliary materials remained largely stable, with industry costs narrowly fluctuating. Due to the weak spot aluminum prices, the industry's immediate profitability declined. As of June 27, the immediate profitability of domestic aluminium was about 2,160 yuan/mt, down 330 yuan/mt WoW.

Domestic primary aluminium import window remained closed during the week, with the domestic spot market maintaining a small amount of imported goods, occasionally offering small quantities of low-iron aluminum ingots from Indonesia, which might be from previous inventory. According to data from Japan's Ministry of Finance, Japan imported 77,000 mt of primary aluminium in April 2024, up 19.35% YoY; cumulative imports for the first four months were 320,500 mt, down 4.5% YoY. Among them, imports from Australia were 29,100 mt, accounting for 37.84%; imports from Russia fell to 375.74 mt, accounting for less than 0.5%, significantly lower than the 18.49% in 2022 and 7.74% in 2023. In terms of demand, the operating rate of domestic downstream aluminium showed a declining trend. The construction materials market, including aluminium extrusion and curtain wall panels, continued to decline due to the off-season. New orders in the automotive and photovoltaic sectors were also poor, with enterprises scheduling production loosely. Additionally, it was learned that recent environmental protection inspections in some areas of Henan led to production cuts in some aluminium processing enterprises. Overall, domestic downstream aluminium demand showed a weak trend, with aluminium ingot social inventory destocking not going smoothly, and spot discounts continuing to expand.

The model predicts that the SMM A00 spot aluminium average price will range between 19,800-20,595 yuan/mt from June 27 to July 3, with a price focus of 20,160 yuan/mt. The extreme price range is 19,330-21,030 yuan/mt, the normal price range is 19,640-20,740 yuan/mt, and the conservative price range is 19,960-20,450 yuan/mt. The price trend for this week is expected to be sideways or swing on a soft note. The support range is 19,640-19,960 yuan/mt, and the resistance range is 20,450-20,740 yuan/mt. The model predicts that the most-traded contract closing price will range between 19,825-20,630 yuan/mt from June 27 to July 3, with a price focus of 20,220 yuan/mt. The extreme price range is 19,450-20,970 yuan/mt, the normal price range is 19,700-20,740 yuan/mt, and the conservative price range is 19,950-20,520 yuan/mt. The price trend for this week is expected to be sideways or swing on a soft note. The support range is 19,700-19,950 yuan/mt, and the resistance range is 20,520-20,740 yuan/mt.

Overall, from a macro perspective, the annualized total sales of new homes in the US for May recorded 619,000 units, the lowest since November 2023. The US Fed maintained a hawkish stance, and the US dollar index remained high, putting pressure on non-ferrous metals. Domestically, the market is waiting to see whether the Third Plenary Session in July will release more unexpected signals. On the fundamentals, domestic aluminum supply maintained growth, and recently, the operating rate of aluminum billet plants was weak, the proportion of aluminum liquid decreased, and the ingot production increased. On the downstream demand, it is transitioning to the off-season, end-user consumption growth is weak, industry orders in the aluminum processing sector decreased, and subsequent operating rate may remain weak. Growing supply and weakened demand are bearish for short-term aluminum prices. SMM expects the price of the most-traded SHFE aluminum contract to fluctuate between 19,700-20,520 yuan/mt this week, while LME aluminum prices may range between $2,460-2,560/mt. Future attention will be on changes in the SHFE/LME price ratio and demand changes both domestically and internationally.

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