SMM May 21:
Macro perspective:
Ex-China, Trump informed Israeli Prime Minister Netanyahu that mediators are drafting a letter of intent, which both the US and Iran will jointly sign to formally end hostilities and initiate a 30-day negotiation on topics including Iran's nuclear program and navigation through the Strait of Hormuz. The US Fed meeting minutes showed that many policymakers advocated removing the easing bias, most participants believed policy tightening would be needed if inflation persistently exceeded 2%, and only a few officials supported future interest rate cuts — the hawkish tone far exceeded market expectations. China side, a spokesperson of China's Ministry of Commerce answered reporters' questions on the preliminary outcomes of China-US economic and trade consultations, stating that the preliminary outcomes reached by both sides in the economic and trade field mainly include the following aspects: First, both sides will continue to implement the outcomes of previous consultations and have reached positive consensus on relevant tariff arrangements. Second, both sides agreed to establish a Trade Council and an Investment Council to discuss respective concerns in trade and investment. Both sides will discuss issues such as tariff reductions on relevant products through the Trade Council, and agreed in principle to reduce tariffs on products of concern to each side of equivalent scale.
Fundamentals side:
Ex-China, amid the Middle East conflict, overseas aluminum exhibited a rigid supply gap, driving continuous destocking of LME inventory. As of this Wednesday, LME inventory decreased by approximately 7,000 mt YoY to 339,500 mt. China side, as of this Thursday, aluminum ingot inventory in China's major consumption regions stood at 1.412 million mt, down 16,000 mt WoW from last Thursday. The destocking inflection point was largely confirmed, boosting market sentiment, but inventory remained at elevated levels, continuing to pressure aluminum prices. Demand side, aluminum prices were in the doldrums during the week, with downstream sectors generally maintaining a mild recovery trend in operating rates. Specifically, China's aluminum extrusion industry recorded an operating rate of 57.4% this week, up 0.5 percentage points WoW, showing characteristics of weak recovery with marginal improvement. Construction extrusion saw steady recovery driven by infrastructure project orders; industrial extrusion maintained steady and positive momentum supported by rigid demand from downstream manufacturing.
Overall:
Macro front, the US and Iran plan to sign a letter of intent to formally end hostilities and initiate 30-day negotiations, with geopolitical risk trajectory still pending observation. The US Fed meeting minutes were far more hawkish than expected, with most policymakers supporting policy tightening, and tightening liquidity expectations were overall bearish for metal prices. Recently, the heads of state of the US and Russia visited China in succession, which is expected to yield preliminary outcomes in the economic and trade field. Fundamentals side, the overseas supply gap and low inventory still provided bottom support, but elevated domestic inventory remained the core factor suppressing significant price rallies. Additionally, weak spot market transaction performance further limited upside room for aluminum prices. In the short term, aluminum prices are expected to continue the pattern of overseas market outperforms domestic market, fluctuating at highs. Meanwhile, close attention should be paid to the sustainability of China's aluminum ingot destocking trend since mid-May. The most-traded SHFE aluminum contract is expected to trade in the range of 23,900-24,800 yuan/mt next week, while LME aluminum is expected to trade in the range of $3,550-3,700/mt.
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