Domestic and International Aluminum Prices Weakened in Tandem, Weak Macro Dragged Down Pre-Holiday Market [SMM Aluminum Price Weekly Review]

SMM April 30:

Macro perspective:

Internationally, on April 26, Iranian Islamic Parliament Vice Speaker Nikzad stated that Iran's Supreme Leader Mojtaba Khamenei had issued a clear order that the Strait of Hormuz must not return to its pre-war status. The US Fed maintained interest rates unchanged as expected, but four dissenting votes emerged this time, constituting the most divided policy meeting since 1992. Meanwhile, the Fed's statement saw significant wording adjustments, explicitly noting for the first time that "the Middle East situation is fueling heightened uncertainty in the economic outlook." Powell sent hawkish signals at the press conference, stating that "oil-related inflation impacts still lie ahead," and noting that the impact of energy price shocks on real economic growth "typically takes 3 to 4 months to show up in some consumer spending data." Money markets subsequently almost abandoned bets on interest rate cuts this year and began pricing in the possibility of rate hikes in 2027. Domestically, the Political Bureau of the CPC Central Committee held a meeting on April 28 to analyze and study the current economic situation and economic work. The meeting noted the need to strengthen planning and construction of water networks, new-type power grids, computing power networks, next-generation communication networks, urban underground pipe networks, and logistics networks. The meeting emphasized deepening the rectification of "involution-style" competition and fully implementing the "AI+" initiative. The meeting also noted efforts to stabilize the real estate market and stabilize and strengthen capital market confidence.

Fundamentals:

Supply side, as the traditional peak consumption season continued, downstream sectors such as plate/sheet, strip and foil, and aluminum wire and cable provided effective demand support. China's proportion of liquid aluminum edged up, with the monthly liquid aluminum proportion rising 1.7 percentage points MoM to 75.3%. Overall performance was slightly below early-month expectations, with the core drag coming from weaker-than-expected aluminum extrusion orders. Based on SMM's liquid aluminum proportion calculation data, China's aluminum casting ingot volume in April declined 3.4% YoY and 9.0% MoM. Demand side, China's aluminum processing composite PMI registered 53.9% in April. While still running above the 50 mark, it pulled back notably from the March high. Overall industry prosperity weakened at the margin, shifting from broad-based recovery to structural divergence. New energy and packaging demand still had support, while real estate, automotive, and some export chains recovered below expectations, and high aluminum prices also suppressed procurement and order release. Overall, the "Silver April" effect continued but momentum weakened, with industry operations trending toward a rational return. Inventory, on Thursday China's mainstream consumption regions had aluminum ingot inventory of 1.432 million mt, destocking 33,000 mt WoW from Monday and destocking 33,000 mt WoW from Thursday of the previous week.

Summary:

Affected by the ongoing Middle East geopolitical conflicts, navigation through the Strait of Hormuz remained restricted, regional aluminum capacity saw production cuts, and the global aluminum supply deficit intensified, highlighting the ex-China aluminum supply-demand gap. LME aluminum premiums recovered and rose, while inventory continued to pull back to low levels, providing solid bottom support for LME aluminum. In contrast, in China, downstream processing enterprises showed weak recovery in operating rates, persistently high aluminum prices suppressed end-user purchase willingness, and social inventory stayed high. Overall, ex-China geopolitical risks persisted and the supply landscape tightened, with LME having fundamental resilience. However, a stronger US dollar and cooling interest rate cut expectations weighed on the commodity sentiment. LME aluminum saw profit-taking at high levels, while SHFE aluminum followed lower, dragged by high inventory and weak demand. The divergence between LME and SHFE continued to converge.The most-traded SHFE aluminum contract is expected to trade in the range of 23,800-24,900 yuan/mt next week, with LME aluminum in the range of $3,380-3,560/mt.