Aluminum prices to fall due to cautious macro environment and poor demand

This week, macro front was significantly impacted by the US Fed's interest rate cut expectations. Early in the week, as US inflation pressures eased and US Fed officials expressed intention, market expectations for a Fed interest rate hike quickly heated up. However, the rate cut expectations receded after presidential candidate Trump, whose support rate is rising, stated that rate cuts should be avoided before the November election. Domestically, the People's Bank of China conducted a 676 billion yuan reverse repo operations to maintain stable liquidity and strengthen expectation guidance. The ongoing 20th Third Plenary Session also holds the potential to release more positive expectations. In the short term, attention should be focused on the positive outcomes of the Third Plenary Session and the latest stance of the US Fed on rate cuts.

This week, the domestic operating capacity of aluminum was around 43.34 million mt, an increase of approximately 100,000 mt from the beginning of July. This was mainly due to the full commissioning of the remaining capacity in Yunnan, bringing Yunnan's operating capacity to 5.78 million mt. Previously halted capacities have fully resumed, and the domestic operating capacity of aluminum is at a historically high level for the same period. Additionally, the recent increase in ingot production in Xinjiang, Qinghai, and other regions has made the domestic aluminum ingot supply relatively sufficient. Cost side, the overall domestic aluminum cost remained largely stable this week. Spot alumina prices did not follow the decline in futures prices, and the tight spot market supported spot prices. As of July 18, the real-time cost of domestic aluminum was about 17,909 yuan/mt, with a real-time profit of about 1,660 yuan/mt, down 573 yuan/mt WoW. On the import side, the Q3 aluminum premium in Japan has been largely settled, with transactions at $172/mt. The overall overseas premium remained high. The import window remained closed. According to data from the General Administration of Customs, the total import volume of unwrought aluminum and aluminum semis in June decreased by 22.6% MoM to 240,000 mt, with the largest decline expected in primary aluminum. Demand side, the domestic downstream aluminum industry operating rate remained weak this week. Some industrial material producers reported that due to the continuous retreat in aluminum prices, end-users' willingness to place orders improved slightly, and operating rate slightly improved from a week ago. However, demand in the construction materials sector remains poor, with no increase in orders. The operating rate in the plate/sheet, strip and foil sector continued to weaken, with low enthusiasm for end-user pickups, high finished product inventories, and a decline in producers' willingness to start production. The cable sector's overall operating rate stabilized, with stable scheduled production from the State Grid.

The model predicts that the SMM A00 aluminum average price will range between 19,380-20,240 yuan/mt from July 18 to July 24, with a price center of 19,800 yuan/mt. The extreme price range is 18,750-20,870 yuan/mt, the normal price range is 19,170-20,450 yuan/mt, and the conservative price range is 19,590-20,030 yuan/mt. Next week， prices are expected to be sideways or swing on a soft note. The support range is 19,170-19,590 yuan/mt, and the resistance range is 20,030-20,450 yuan/mt. The model predicts that the most-traded aluminum contract closing price will range between 19,345-20,320 yuan/mt from July 18 to July 24, with a price center of 19,800 yuan/mt. The extreme price range is 18,740-20,930 yuan/mt, the normal price range is 19,140-20,520 yuan/mt, and the conservative price range is 19,550-20,120 yuan/mt. Next week，prices are expected to be sideways or swing on a soft note. The support range is 19,140-19,550 yuan/mt, and the resistance range is 20,120-20,520 yuan/mt.

Overall, recent domestic and overseas macroeconomic data have been released, showing lower-than-expected results, indirectly reflecting a weak global economy. Together with the ongoing Israel-Palestine conflict and the upcoming US elections, macro sentiment remains cautious, with capital flowing towards safe-haven assets. Domestically, the Third Plenary Session's communique has been released, and the market is waiting for more progressive policies to be implemented. On the fundamentals, domestic aluminum supply was high from July to August, with sufficient supply, while downstream demand was in off-season, leading to sluggish destocking of the social inventory of aluminum ingots. Together with the US's intention to impose tariffs on Chinese aluminum semis, the mismatch between supply and demand in the aluminum market is expected to worsen. On the cost side, the sharp fall in alumina prices has weakened the support for aluminum costs. In the short term, multiple bearish factors are weighing on the aluminum market prices, lacking upward momentum. SMM expects the most-traded SHFE aluminum contract to fluctuate between 19,140-20,120 yuan/mt next week, while LME 3M aluminum may fluctuate between $2,370-2,490/mt. Continued attention should be paid to downstream consumption and changes in macro sentiment both domestically and internationally.