Aluminum prices likely to move rangebound due to poor demand

Last week, macroeconomic front remained relatively stable. The US non-farm payrolls growth data was lower than expected, and inflationary pressures eased, strengthening market expectations for a US Fed rate cut. The Chinese government continued to boost consumption and support the real estate market. In the short term, potential macroeconomic variables remain the US Fed rate cut expectations and regional conflicts.

Last week, the domestic aluminum operating capacity remained largely stable at around 43.27 million mt. Domestic aluminum producers maintained stable production, with no large-scale shutdowns or restarts. The market supply of aluminum ingots and other aluminum products was sufficient. On the cost side, the domestic aluminum cost stabilized, with no significant changes in the mainstream transactions in the alumina spot market. As of July 11, the domestic aluminum real-time cost was about 17,906 yuan/mt, with domestic aluminum spot prices falling. The domestic aluminum real-time profit was about 2,233 yuan/mt, down 240 yuan/mt from a week ago. On the import side, the domestic aluminum import window remained closed, with only some long-term contract sources circulating in the market. The Q3 port premiums in Japan were yet to be determined, expected to be priced around $160-180/mt. Demand side, the domestic aluminum processing industry's operating rate remained weak. Aluminum extrusion companies were in the off-season, with low processing fees for photovoltaic frames and insufficient willingness to take orders. There was no significant increase in end-user orders for 3C and automotive sectors, and the industry's operating rate was sluggish. Building material orders continued to decline, with consumption drivers still awaiting more policy support. Additionally, the Biden administration in the US imposed new tariffs on steel and aluminum products transshipped through Mexico to prevent China from circumventing existing tariffs. These measures took effect on July 10, imposing a 25% tariff on steel from Mexico that is not melted and poured in Mexico, the US, or Canada, and a 10% tariff on aluminum products transshipped through Mexico that are cast or melted in China, Russia, Iran, or Belarus. Coupled with previous news of the Mexican government imposing tariffs on Chinese aluminum semis, it is expected that China's exports of aluminum semis to the Mexican and US markets will significantly decrease in the future. According to customs data, in 2023, China exported about 240,000 mt of aluminum semis to the US and about 500,000 mt to Mexico.

The model predicts that the SMM A00 spot aluminum average price will move between 19,920 and 20,595 yuan/mt from July 11 to July 17, with a price center of 20,250 yuan/mt. The extreme price range is expected to move between 19,480 and 20,970 yuan/mt, the normal price range between 19,770 and 20,720 yuan/mt, and the conservative price range between 20,070 and 20,470 yuan/mt. The price trend for this week is expected to move sideways or swing on a soft note. The support range is between 19,770 and 20,070 yuan/mt, and the resistance range is between 20,470 and 20,720 yuan/mt. The model predicts that the most-traded contract closing price will trade between 19,990 and 20,815 yuan/mt from July 11 to July 17, with a price center of 20,360 yuan/mt. The extreme price range is expected to be between 19,600 and 21,150 yuan/mt, the normal price range between 19,860 and 20,930 yuan/mt, and the conservative price range between 20,120 and 20,700 yuan/mt. The price trend for this week is expected to be sideways or swing on a soft note. The support range is between 19,860 and 20,120 yuan/mt, and the resistance range is between 20,700 and 20,930 yuan/mt.

On the macro side, the latest statement from the US Fed was dovish, with the market maintaining a roughly 70% probability of a rate cut in September. The US dollar index fell, and attention should be paid to the upcoming US inflation data. Domestically, the 20th Third Plenary Session will be held this week, and the market is waiting for more economic stimulus. On the fundamentals, the domestic aluminum market has ample supply, demand has entered the off-season, and there is no strong driving force in the fundamentals. There is an expectation of loosening support for aluminum costs. In the short term, the aluminum market has a cautious macro atmosphere, no fundamentals drivers, and low enthusiasm for capital entry, weighing on aluminum prices in the short term. SMM predicts that this week, the most-traded SHFE aluminum contract price will fluctuate between 19,860-20,700 yuan/mt, and LME aluminum prices may range between $2,450-2,560/mt. Attention should be paid to changes in macro sentiment and the operating rates of downstream aluminum industry.