SMM, March 12:
Macro perspective:
The Middle East turmoil triggered by a joint US-Israeli military strike on Iran became the biggest geopolitical black swan for the global primary aluminum market, potentially causing supply disruptions on the scale of millions of metric tons while also pushing up smelting costs. So far, the market’s main trading focus remained on the geopolitical situation in the Middle East. From this week’s macro developments, Trump released signals of negotiations, but Iran clearly stated that its new supreme leader would not negotiate with him. There was no obvious easing in the US-Iran conflict for the time being, and concerns over energy and supply continued to be priced in. US February CPI data came in line with expectations, with inflation showing a steady cooling trend; however, against the backdrop of geopolitical conflict, divergence over the inflation outlook widened and uncertainty rose significantly.
Fundamentals:
After the holiday, downstream producers gradually resumed operations, and demand for liquid aluminum continued to recover. As of Thursday this week, the weekly proportion of liquid aluminum rebounded about 1.2 percentage points WoW, end-use demand steadily recovered, and downstream operating rates improved further. Driven by the PV installation rush, operating performance was strong; construction recovered slowly after the holiday, and extrusion operating rates rose MoM; boosted by auto and packaging orders, aluminum plate/sheet, strip and foil operating rates also rebounded this week.
Affected by high aluminum prices and greater futures fluctuations, downstream sentiment toward aluminum ingot procurement remained cautious. Aluminum ingot accumulated at railway platforms continued to flow into inventory, and China aluminum social inventory posted an inventory buildup of about 23,000 mt MoM, with the seasonal inventory buildup pattern continuing.
In summary:
Geopolitical conflicts intensified supply concerns; combined with visible shortage pressure caused by trade restrictions on Russian aluminum imposed by some countries and regions, tightness in LME spot aluminum continued to worsen. LME cancelled warrants kept rising, with the share moving higher, and actually available inventory had fallen to the lowest level since May 2025. Structurally, by the end of February, the share of Russian aluminum in LME available inventory rose from 58% in January to 60%, while circulation volume of non-Russian aluminum remained scarce. Spot buying from Europe and Asia poured into LME warehouses in a concentrated manner, further accelerating inventory depletion.
Against the backdrop of continued tightening LME liquidity, LME aluminum still had momentum to strengthen, with strong support from overseas prices, and was expected to maintain a backwardation structure in the short term. China, by contrast, remained in a phase of high inventory plus weak spot fundamentals, with upward momentum clearly weaker than outside China. Amid diverging domestic and overseas drivers, the SHFE/LME price ratio is expected to continue weakening. Aluminum prices are expected to continue to fluctuate at highs next week, with the most-traded SHFE aluminum contract expected to trade at 24,500-25,800 yuan/mt and LME aluminum at $3,400-3,600/mt.
