Macro Geopolitical Risks Have Yet to Subside, Aluminum Prices Maintained a Fluctuating Pattern [SMM Aluminum Morning Meeting Summary]

3.23 SMM Morning Meeting Summary

Futures: In the night session on March 20, the most-traded SHFE aluminum 2605 contract opened at 24,100 yuan/mt, hit an intraday high of 24,160 yuan/mt and a low of 23,450 yuan/mt, and finally closed at 23,530 yuan/mt, down 490 yuan/mt from the previous close, a decline of 2.04%. From a technical perspective, the 5-day (24,304) and 10-day moving averages (24,734) turned sharply downward, forming a bearish alignment, with prices remaining under pressure below short-term moving averages. The 20-day moving average (24,540) turned into a resistance level. In terms of open interest, night-session open interest stood at 275,000 lots, down 5,300 lots from the daytime session. LME aluminum opened at $3,255/mt, rose to a high of $3,299/mt, fell to a low of $3,181/mt, and closed at $3,192/mt, down 1.54%. Trading volume was 31,999 lots, down 33,029 lots, and open interest was 684,000 lots, down 5,099 lots.

Macro front: On Saturday evening, US President Trump issued an ultimatum to Iran, demanding that it fully reopen the Strait of Hormuz within 48 hours or face attacks on its power facilities. The US was also considering a plan to seize Kharg Island, Iran's oil export hub, and US officials said more than 2,000 additional Marines were being deployed to the Middle East. Iran responded that if its power plants were attacked, it would completely block the Strait of Hormuz and target all energy, information technology, and seawater desalination infrastructure in the Middle East belonging to Israel and the US. (Neutral) As oil prices surged to the highest level in nearly four years, bond traders completely abandoned bets on US Fed interest rate cuts this year, and even saw about a 50% probability of a rate hike by as early as October. Data from the Commodity Futures Trading Commission showed that the US dollar's safe-haven status was supported, with related futures positions turning net long for the first time this year. (Bearish ★)

Fundamentals: On inventory, aluminum ingot inventory in China's major consumption regions fell by 2,000 mt from last Thursday as of Monday, with the main sources of destocking coming from Gongyi and Shanghai. The post-holiday inventory buildup cycle in aluminum has entered its final stage. As downstream demand continued to recover, spot transactions remained active, and inventory overhang pressure gradually eased, the momentum of inventory buildup kept weakening. Supported by rigid demand and peak-season expectations, China's aluminum social inventory is expected to reach a trend inflection point in late March.

Primary Aluminum Market: In early trading, SHFE aluminum 2604 fluctuated downward, with the price center falling sharply from the previous trading day. Affected by the decline in aluminum prices, overall procurement sentiment rose last Friday, prompting sellers to hold prices firm. Last Friday, mainstream transaction prices were concentrated around the average price of the SHFE aluminum 04 contract to a premium of 20 yuan/mt. Last Friday, the east China market shipment sentiment index was 3.2, up 0.06 WoW; the purchasing sentiment index was 3.23, up 0.07 WoW. Last Friday, SHFE aluminum futures prices plunged sharply. Coupled with the weekend market closure, downstream processing enterprises had purchasing and stockpiling demand, driving overall buying sentiment in the central China market to a high level, with a strong bullish atmosphere. Suppliers showed a strong willingness to hold prices firm, and market quotations showed no downward trend. However, the premium passed on to downstream enterprises was limited. In the end, the overall quotation range in the central China market was mainly concentrated at a premium of 10 yuan to 60 yuan over the central China price, while actual mainstream transaction prices were mainly concentrated at a premium of 30 yuan to 40 yuan over the central China price. Last Friday, the central China market shipment sentiment index was 2.61, up 0.03 MoM; the purchasing sentiment index was 2.51, up 0.08 MoM.

Aluminum Scrap:Last Friday, spot primary aluminum fell 420 yuan/mt from the previous trading day, and the aluminum scrap market generally followed downward. On the supply side, stricter regulatory oversight under the “reverse invoicing” policy sharply increased tax compliance costs in the aluminum scrap recycling chain. In some regions, as operating procedures have not yet been fully streamlined, the actual supply of compliant, invoice-backed circulating cargo remained tight, and supply-side elasticity was significantly weakened by policy frictions. On the demand side, although the market was in the traditional peak consumption season of “Golden March and Silver April,” aluminum prices fluctuating at highs severely squeezed downstream profit margins. Order acceptance among scrap utilization enterprises fell to a freezing point, willingness for large-scale restocking was absent, and most purchases were limited to just-in-time procurement, highlighting an underperforming peak season. The aluminum scrap market is expected to remain in high-level, weak fluctuations next week, with the mainstream range for shredded aluminum tense scrap, priced based on aluminum content, running around 20,200-20,800 yuan/mt (excluding tax). Geopolitical conflict between the US and Iran remains the main bullish factor for primary aluminum, but inventory at high levels of aluminum ingot in China is capping upside room for aluminum prices, dragging the overall aluminum scrap market into the doldrums at highs. On the supply side, regulatory policies such as reverse invoicing are unlikely to see substantive easing in the short term, keeping compliance costs in the aluminum scrap recycling chain elevated and continuing to suppress raw material circulation efficiency. On the demand side, expectations for weak aluminum price performance will slightly dampen purchasing sentiment among traders and downstream scrap utilization enterprises. In addition, the “Golden March and Silver April” peak season has fallen short of expectations, with the release pace of end-user orders clearly lagging the seasonal pattern. Most downstream scrap utilization enterprises are purchasing as needed, lacking momentum for large-scale restocking. In the short term, close attention is still needed on the impact of geopolitical conflict on primary aluminum price fluctuations, the actual recovery of end-user orders, and the actual implementation progress of supply-side policies, with vigilance against the risk of wild swings within the high-price range.

Secondary Aluminum Alloy:In futures, aluminum alloy 2604 in last Friday’s daytime session showed a pattern of retreat after rapid rise and one-sided decline. After opening higher in the morning, it fluctuated upward and touched an intraday high of 23,160 yuan/mt before noon. Bulls then lost momentum, and prices retreated step by step. In the afternoon, losses widened, with the low reaching 22,180 yuan/mt. The decline narrowed slightly toward the close, and it ultimately closed at 22,810 yuan/mt, down 485 yuan/mt from the previous trading day, or 2.08%. Trading volume increased from yesterday, while open interest continued to decline, with clear signs of capital exiting the market. In the spot market, quotes were generally lowered last Friday, with the SMM ADC12 price down 300 yuan/mt to 25,000 yuan/mt. Driven by the price pullback and weekend restocking demand, market trading sentiment recovered from the previous period, and downstream purchase willingness to buy the dip strengthened, improving transactions for some enterprises. However, overall demand remained mainly driven by rigid demand, with end-users sensitive to price fluctuations and maintaining a cautious restocking pace. In the short term, ADC12 prices are expected to remain in the doldrums. The pattern of demand being under pressure is unlikely to change in the near term, downstream acceptance of high prices is limited, and the weak trend in primary aluminum is also weighing on market sentiment, causing prices to struggle to rise; however, with cost support, downside room is also limited. Going forward, close attention should be paid to primary aluminum trends and the pace of downstream consumption release.

Aluminum Market Summary:At present, macro and geopolitical risks in the global aluminum market have not subsided. The situation in the Middle East remained in stalemate, threats to navigation through the Strait of Hormuz remained unresolved, and aluminum enterprises in the region faced two-way disruptions to raw material imports and product exports. The stability of the global aluminum supply chain was under pressure, and the risk premium persisted, though some of the earlier risk premium was given back during the week as sentiment eased and bulls took profits. Affected by stronger-than-expected US employment and inflation data, market expectations for interest rate cuts were pushed back significantly, with the first rate cut this year likely delayed to late Q3 to Q4. A stronger US dollar, coupled with tighter liquidity expectations, continued to weigh on commodity valuations. Fundamentally, expectations for aluminum production cuts outside China still remained. In Europe, the Middle East, and other regions, some capacity entered maintenance cycles amid disruptions from energy and logistics factors, and the logic of global supply contraction remained intact. In China, aluminum operating rates remained stable, supply-side increments were limited, and overall supply stayed steady. After the holiday, China demand entered a gradual recovery track, the proportion of liquid aluminum direct supply increased, and the operating rate of downstream processing enterprises rebounded MoM, with the industry gradually returning to a normal production pace. Among them, demand from PV, packaging, and the power grid was strong, forming core support; construction extrusion recovered slowly with the progress of work resumption, while the recovery pace in traditional sectors remained mild, and overall end-user support gradually strengthened. Continued destocking in LME inventory provided bottom support for LME aluminum, but amid tighter capital liquidity and profit-taking by bulls, upward momentum was insufficient, and the backwardation structure weakened somewhat. China’s social inventory rose to a high for the same period in the past five years, the inventory buildup cycle had not ended, and high inventory plus weak spot fundamentals jointly weighed on upward momentum. Divergence between domestic and overseas drivers continued, the SHFE/LME price ratio kept weakening, and the market is likely to remain under pressure in the short term.

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