Will the Situation in the Middle East Take a Turn for the Better? SHFE Aluminum Continues to Decline [SMM Aluminum Futures Brief Commentary]

》Check SMM aluminum product quotes, data, and market analysis

SMM News on June 24:

Today, the most-traded SHFE aluminum 2507 contract opened at 20,415 yuan/mt, with a high of 20,450 yuan/mt, a low of 20,255 yuan/mt, and closed at 20,255 yuan/mt. Trading volume was 137,000 lots, and open interest was 250,000 lots.

SMM Comment: On the macro front, the probability of short-term conflict escalation in the Middle East has decreased, and the premium previously driven by risk-aversion sentiment may pull back. On the fundamental front, domestic operating capacity of electrolytic aluminum remains stable, with the proportion of liquid aluminum staying high, and the market supply of casting ingots remains tight. On the demand side, overall, most downstream sectors are in the traditional off-season. Downstream production cuts in central China have been notably reported, with weak spot transactions and sustained large discounts in market transaction prices. The off-season demand weakness in PV and home appliance sectors cannot be ignored, with a significant decline in the operating rates of related sectors. The wire and cable sector has also seen a decline in operating rates due to the completion of the previous delivery period and high aluminum prices. In terms of inventory, the destocking rate has slowed down, and low inventory still provides support to the futures market. Inventory buildup occurred on Monday this week, and it is necessary to observe whether the destocking inflection point has officially formed. However, spot premiums/discounts have gradually pulled back. In summary, in the short term, supported by expectations for US Fed interest rate cuts and low inventory, aluminum prices may hover at highs. However, under the pressure of geopolitical risk easing and fundamental inventory buildup, the upside room is relatively limited. Spot premiums/discounts may fall back from highs, and subsequent attention should be paid to changes in inventory and demand.

Today, the most-traded alumina 2509 contract opened at 2,900 yuan/mt, with a high of 2,930 yuan/mt, a low of 2,891 yuan/mt, and closed at 2,903 yuan/mt. Trading volume was 250,000 lots, and open interest was 281,000 lots.

SMM Comment: Last week, some alumina refineries completed maintenance and resumed production. Meanwhile, considering ore costs, there were new reports of production cuts. The operating capacity of alumina increased and decreased in parallel. Overall, the operating capacity of alumina decreased by 440,000 mt/year MoM to 88.57 million mt/year last week. Spot supply remains loose, and the total inventory of alumina at electrolytic aluminum smelters increased by 8,600 mt to 2.655 million mt last week. In the short term, the alumina fundamental front is expected to maintain a relatively loose pattern, and alumina spot prices are expected to drop back slightly. Yesterday, the futures market fluctuated upward in the morning session due to the news of the blockade of the Strait of Hormuz. After assessing that it would not temporarily affect the supply of domestic imported ore, the futures market pulled back. Subsequent attention should be paid to the capacity changes and profitability of domestic alumina enterprises.

Today, the most-traded cast aluminum alloy 2511 contract opened at 19,700 yuan/mt, with a high of 19,740 yuan/mt, a low of 19,520 yuan/mt, and closed at 19,625 yuan/mt. Trading volume was 4,000 lots, and open interest was 8,000 lots.

SMM Comment: Aluminum prices continued to decline slightly yesterday, with SMM ADC12 prices falling by 50 yuan/mt to 19,900-20,100 yuan/mt. Market quotes showed slight divergence, with some enterprises slightly lowering their quotes due to weak demand, while others remained firm, supported by cost pressure. Overall, the rigid support from costs and the weak demand during the off-season continued to clash, keeping ADC12 prices fluctuating rangebound. As the off-season deepens, it is expected that ADC12 prices will remain in the doldrums in the short term. It is recommended to closely monitor the circulation of raw materials and the marginal changes in demand during the off-season.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make decisions cautiously and not rely on this as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]