Middle East Geopolitical Black Swan Strikes Aluminum Market Maintains Strong Oscillation [SMM Aluminum Morning Meeting Summary]

3.2 SMM Morning Meeting Summary

Futures: On the night session of February 27, the most-traded SHFE aluminum 2604 contract opened at 23,815 yuan/mt, reaching a high of 23,885 yuan/mt and a low of 23,710 yuan/mt, finally closing at 23,730 yuan/mt, down 105 yuan/mt or 0.44% from the previous close. From a technical analysis perspective, the MA lines showed a divergent pattern with MA30 (24,067.17) > MA20 (23,957.25) > MA5 (23,776) > MA10 (23,678.5). The RSI was in the 40-50 range, indicating a neutral but slightly weak trend, not entering overbought/oversold territory, with clear fluctuation characteristics. In terms of open interest, the night session saw about 260,000 lots, an increase of 1,102 lots from the daytime session. LME aluminum opened at $3,144.5/mt, reached a high of $3,173/mt, a low of $3,128.5/mt, and closed at $3,141.5/mt, unchanged from the previous day. Trading volume was 20,593 lots, down 538 lots, and open interest was 678,000 lots, down 5,094 lots.

Macro Front: In the afternoon of February 28 Beijing time, Israel launched a preemptive strike on Iran, code-named "Roaring Lion," to eliminate threats to Israel. On March 1, Iran confirmed that its Supreme Leader Khamenei was killed in the attacks by the US and Israel. (Bullish ★) According to real-time data from the International Tanker Traffic Monitoring System, the speed of oil tankers in the waters around the Strait of Hormuz has generally dropped to zero, indicating that shipping in the region has come to a standstill. The Strait of Hormuz is the only passage from the Persian Gulf to the Indian Ocean, handling the main maritime transportation tasks for primary aluminum and related raw materials in the Middle East. Its shipping safety directly determines the operation of the regional aluminum industry, and any disruption would trigger a regional supply crisis and spread globally. (Bullish ★)

Fundamentals: In February, the domestic aluminum processing composite PMI recorded 34.8%, operating below the 50 mark. Significantly weakened by the Chinese New Year holiday, the overall aluminum processing sector was under pressure, with PMIs across various sub-sectors generally below the 50 mark. The PMIs for aluminum plate/sheet and strip, construction extrusion, and secondary alloy significantly pulled back into contraction territory, with production, procurement, and new orders all declining. Enterprises halted operations for maintenance, reducing effective production time, while downstream cargo pick-up and order releases were weak.

Primary Aluminum Market: On Friday morning, the most-traded SHFE aluminum 2602 contract fluctuated downward, with the price center lower than the previous trading day. Affected by the decline in aluminum prices, the spot-futures price spread, and the price spread between futures contracts, the market's premiums and discounts rose. Mainstream quotations concentrated around the average to 20 yuan/mt. On Friday, the east China market's shipment sentiment index was 2.89, up 0.08 MoM; the purchasing sentiment index was 2.73, up 0.03 MoM. SMM A00 aluminum closed at 23,410 yuan/mt, down 110 yuan/mt from the previous trading day, at a discount of 170 yuan/mt against the 2603 contract, up 10 yuan/mt from the previous trading day. In the early stages of resuming work after the Chinese New Year holiday, orders for downstream processing enterprises had not fully recovered, and pre-holiday inventory had not been completely consumed, leading to low restocking willingness. However, the pullback in aluminum prices still prompted some processing enterprises and traders to take the opportunity to restock slightly, with overall buying sentiment rebounding. The actual transaction price in the central China market finally fluctuated between a premium of 10 yuan over the central China price and a discount of 20 yuan. On Friday, the shipping sentiment index in the central China market was 2.61, up 0.01 MoM; the purchasing sentiment index was 2.23, up 0.13 MoM. SMM central China closed at 23,290 yuan/mt, down 120 yuan/mt from the previous trading day, at a discount of 290 yuan/mt against the 2603 contract, unchanged from the previous trading day. The price spread between Henan and Shanghai was -120 yuan/mt, widening by 10 yuan/mt from the previous trading day.

Aluminum scrap:On Friday, the spot primary aluminum price decreased by 110 yuan/mt compared to the previous day, with the aluminum scrap market showing mixed declines. In terms of the price difference between A00 aluminum and aluminum scrap, on February 26, the price difference in Foshan for mixed aluminum extrusion scrap free of paint was 3,388 yuan/mt, and for shredded aluminum tense scrap it was 2,511 yuan/mt. Regions such as Jiangxi, Hunan, and Anhui chose to observe on Friday without adjusting prices. After the Chinese New Year holiday, most domestic yards resumed operations and shipments between the eighth and tenth days, with raw material inventories of downstream aluminum processing enterprises dropping to low levels, indicating a need for restocking. However, the 2026 Chinese New Year holiday was longer than in previous years, resulting in a lag in large-scale restocking actions. Last week, there were no significant signs of recovery in aluminum scrap shipments. It is expected that the aluminum scrap market will hover at highs this week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) operating within the 19,000-19,600 yuan/mt (excluding tax) range. On the supply side, yards are gradually resuming full operations, and the release of sources will increase, but recycling policies still constrain liquidity. On the demand side, the pace of resumption of operations for downstream enterprises is accelerating, and restocking needs are expected to be slowly released. The tug-of-war between sellers and buyers continues, with the market's trading atmosphere gradually recovering but remaining sluggish. Close attention should be paid to the progress of downstream resumptions, the trend of primary aluminum prices, and changes in recycling policies, while being vigilant about the risk of price fluctuations.

Secondary aluminum alloy:In the futures market, the most-traded 2604 aluminum alloy contract opened at 22,655 yuan/mt on Friday morning, briefly reaching 22,633 yuan/mt before quickly pulling back, fluctuating around the intraday moving average in the doldrums. Around 1:30 PM, it hit an intraday low of 22,455 yuan/mt, then bottomed out and rebounded, recovering to near the moving average by the close, finally closing at 22,730 yuan/mt, up 0.09% from the previous close. Trading volume was 9,812, and open interest was 7,920, with bears mainly reducing their positions. In the spot market, the SMM ADC12 price rose slightly by 50 yuan/mt last Friday. The market inquiry sentiment gradually recovered during the week, with increased activity in trading, though actual transaction volumes remained relatively limited. Currently, downstream enterprises are primarily focused on restocking based on rigid demand and prioritizing the digestion of pre-Chinese New Year inventories. As terminal enterprises fully resume operations after entering March, the certainty of MoM demand improvement strengthens, and the consumption side will continue its rebound trend. Last week, the operating rate of leading enterprises in the secondary aluminum industry rebounded by 6.3 percentage points from the week before the Chinese New Year to 53.1%, primarily driven by the concentrated resumption of production after the holiday. With enterprises fully resuming production after the Lantern Festival, market liquidity is expected to gradually increase. Against a backdrop of relatively stable raw material supply and moderate industry profits, if primary aluminum prices hold up well, production enthusiasm among enterprises is expected to remain high, and supply pressure will increase marginally. However, attention should still be paid to the potential impact of policy changes on the production pace of enterprises in regions such as Anhui. Overall, in the short term, ADC12 prices are expected to continue moving sideways, but as demand gradually recovers, the center of price fluctuations is expected to continue to rise. Before the full realization of production resumptions, the slow release of supply, coupled with cost support, will relatively limit the downside space for prices. As enterprises fully resume production, market focus will gradually shift to the actual realization of end-use consumption. If terminal orders experience periodic surges, coupled with primary aluminum fluctuating upward, there remains room for further upward price correction for ADC12. Conversely, if demand recovery falls short of expectations, prices may continue their current sideways consolidation pattern.

Aluminum Market Summary: The Middle East turmoil triggered by the U.S.-Iran conflict has emerged as the biggest geopolitical black swan event for the global primary aluminum market, potentially causing supply disruptions on the scale of millions of metric tons while driving up smelting costs. Coupled with market risk aversion sentiment, aluminum price volatility is expected to amplify. Going forward, continuous vigilance is required regarding risks such as conflict escalation, strait blockades, raw material supply disruptions, as well as further impacts from macro disturbances on aluminum prices, necessitating cautious responses to operational and investment risks arising from supply chain fluctuations. Seasonal fundamental pressures remain prominent. On the supply side, new aluminum projects, both domestically and overseas, are steadily ramping up production, with the conversion ratio of liquid aluminum remaining low. On the demand side, downstream processed material operations are showing a steady recovery pace post-holiday. However, under the influence of seasonal supply outpacing demand and some goods being backlogged at railway stations, it is expected that the post-holiday peak in domestic aluminum ingot inventory will surpass 1.35 million mt, reaching a five-year high, which will be a key factor suppressing price increases. Overall, aluminum prices exhibited a pattern of initial decline followed by rebound around the Chinese New Year, and SHFE aluminum is expected to maintain a bias toward holding up well in the short term.

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