Geopolitical and Supply-Demand Factors Intertwined, SHFE and LME Aluminum Maintain Range-Bound Weak Pattern in the Short Term [SMM Aluminum Morning Meeting Minutes]

SMM Morning Meeting Minutes, 5.8

Futures:The most-traded SHFE aluminum 2606 contract closed at 24,410 yuan/mt, up 0.12%. The price was below MA5 (24,513.00) and MA10 (24,692.50), but still above MA30 (24,699.00) and MA60 (24,496.92), with short-term moving averages forming resistance while medium-term support remained intact. The MACD indicator DIF (-36.4646) was below DEA (50.0644), with the histogram in negative territory (-173.0581), indicating continued release of bearish momentum. The suggested core trading range for SHFE aluminum is 24,100-24,800. LME aluminum 3M closed at $2,482.5/mt, down 0.21%, moving sideways. The price fell below MA30 (3,504.72), MA10 (3,526.35), and MA5 (3,517.60), but remained above MA60 (3,371.01), with short-term moving averages forming resistance while long-term support held. The MACD indicator DIF (22.7191) crossed below DEA (41.1114), with the histogram turning negative (-36.7845), forming a death cross, indicating continued weakening of upward momentum. The suggested core trading range for LME aluminum is 3,400-3,560.

Macro front:Multiple sources said the US and Iran may be close to reaching an interim agreement. Several core demands previously raised by the US, such as Iran suspending nuclear activities, limiting its missile program, and ceasing support for so-called "regional proxies," were not included in the draft agreement. The agreement would comprise three phases: first, formally ending hostilities; second, resolving the Strait of Hormuz crisis; and third, initiating a 30-day negotiation window to pursue a broader agreement. Iranian President Pezeshkian and Iran's Supreme Leader Mojtaba met recently, exchanging views for nearly two and a half hours. An Iranian Foreign Ministry spokesperson said Iran had not yet reached a conclusion on the US proposal nor responded to the US. The Iranian Revolutionary Guard Corps Navy has designated two shipping lanes for vessel passage, but vessels are still not permitted to transit the Strait of Hormuz without authorization.

Fundamentals:Supply side, boosted by high prices, aluminum smelters in China increased their load, with operating rates rising slightly. Demand side, the proportion of liquid aluminum edged up 0.2 percentage points this week; on the downstream front, the market gradually entered the off-season, with downstream demand showing slight weakness and weekly downstream operating rates declining marginally. This week, operating rates across China's aluminum processing sub-sectors continued their overall weak trend. The post-Labour Day holiday effect combined with wild swings in aluminum prices led to varying degrees of WoW pullbacks in operating rates across most segments, with the overall rate recorded at 64.2%. Overall, aluminum processing operating rates are expected to face downward pressure in the near term, with the demand off-season and cost pressure forming a dual drag. Operating rates across segments are expected to be under pressure in May, but strengthening export orders and structural recovery in some industrial demand segments will provide certain floor support for the industry. Inventory, aluminum ingot inventory in major consumption areas in China was 1.441 million mt as of this Friday, destocking 15,000 mt WoW from this Wednesday.

Primary aluminum market:Yesterday morning, SHFE aluminum 2605 contract fluctuated downward, with the overall price center moving lower compared to the previous trading day. Yesterday, invoicing constraints led to a contraction in market trading shipments. Yesterday, downstream buyers showed a strong wait-and-see sentiment, and purchase willingness cooled. Dragged by weak spot buying, mainstream transactions were concentrated around SMM A00 aluminum minus 10 yuan/mt to the average price. Yesterday, the east China market shipment sentiment index was 2.65, down 0.01 WoW; the purchase sentiment index was 2.6, down 0.2 WoW. Yesterday, the trading atmosphere in the central China market weakened again compared to the previous day, with overall invoicing quotas continuing to decline and insufficient market trading confidence. Most purchasers were concentrated between 8:00 and 8:30. Initially, suppliers showed a strong willingness to hold prices firm, but subsequent transactions were sluggish, with quotes showing a continued downward trend. Transaction prices for invoiced shipments on the day were slightly higher than normal shipments. Ultimately, the actual transaction price range in the central China market was concentrated between a 20-yuan premium and a 10-yuan discount to the central China price, with mainstream transactions at a 10-yuan premium to the central China price. Yesterday, the central China market shipment sentiment index was 2.82, down 0.01 WoW; the purchase sentiment index was 2.27, down 0.01 WoW.

Aluminum scrap:Yesterday, A00 aluminum price was down 480 yuan/mt from the previous trading day, and aluminum scrap market prices overall followed with a decline of 200-300 yuan/mt. Shredded aluminum tense scrap (priced based on aluminum content) mainstream range operated around 20,500-21,100 yuan/mt (tax exclusive). Imported zorba (Ningbo Port) operated in the range of 21,570-21,870 yuan/mt (tax inclusive). Price spread, on May 7, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was recorded at 2,478 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 1,833 yuan/mt. Supply side, affected by the Labour Day holiday, most aluminum scrap yards arranged 1-2 days off, and the aluminum scrap collection and shipment pace remained generally stable compared to April. After the holiday, raw material prices swung wildly, and aluminum scrap yards generally held back from selling and held prices firm; high LME prices led import traders to adopt a cautious strategy, and subsequent imports are expected to pull back. Demand side, the traditional off-season set in, the operating rate of secondary aluminum producers pulled back slightly, aluminum tense scrap was purchased as needed with low inventory operations, and wrought aluminum alloy scrap was supported by secondary aluminum plate/sheet and strip operating rates but with limited strength. Downstream demand was mainly rigid, with strong wait-and-see sentiment. Next week, the aluminum scrap market is expected to remain in the doldrums at high levels, with shredded aluminum tense scrap (priced based on aluminum content) mainstream range maintained at 20,500-21,300 yuan/mt (tax exclusive). Supply-side policy constraints are unlikely to ease in the short term, and tight compliant supply coupled with expected pullback in imports will provide certain price support. Demand side, the off-season effect continued. Downstream secondary aluminum enterprises remained cautious and on the sidelines, with procurement mainly focused on rigid-demand small-order restocking. The divergence between aluminum tense scrap and wrought aluminum alloy scrap remained unchanged, order increments were limited, and vigilance was still needed against market risks brought by aluminum price fluctuations and tight supply.

Secondary aluminum alloy:Spot market, the ADC12 spot market also fluctuated downward yesterday, with mainstream enterprises generally lowering quotes by 200-300 yuan/mt, and the market sentiment to follow the decline was strong. On one hand, futures pulled back sharply, exerting strong pressure on the spot market, and enterprises actively lowered their quotes; on the other hand, downstream consumption remained weak, further undermining market confidence. Yesterday, the cost side provided some support to prices, but under the influence of insufficient demand and pessimistic market expectations, ADC12 prices still faced certain downward pressure in the short term, and the market continued to be in the doldrums.

Aluminum market summary:Internationally, affected by the ongoing geopolitical conflicts in the Middle East, navigation through the Strait of Hormuz was restricted, regional aluminum capacity saw production cuts, and the global aluminum supply deficit intensified. However, expectations of easing US-Iran tensions remained neutral, providing limited support to aluminum prices. Domestically, downstream processing enterprises showed weak recovery in operating rates, persistently high aluminum prices continued to suppress end-user purchase willingness, and China's social inventory stayed high. The macro situation remained uncertain, and under high inventory pressure, domestic aluminum prices underperformed LME. Attention was still needed on whether the inflection point of China's inventory could arrive smoothly.

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