Destocking Acceleration Provides Support, Export Concerns Limit Rebound Space [SMM Aluminum Morning Briefing]

6.29 SMM Morning Meeting Minutes

Futures:SHFE aluminum closed at 23,115 yuan/mt last Friday, up 0.81%, with intraday fluctuations within 22,890-23,190. Prices are far below all key moving averages (MA5=23,119, MA10=23,622, MA30=24,149, MA60=24,501.5). The moving averages are in a bearish alignment and diverging at an accelerating pace, signaling pronounced weakness. The MACD indicator shows DIF at -359.93 and DEA at -249.68, with a death cross downward and the negative histogram expanding to -220.50, indicating strengthening bearish momentum. Trading volume slightly picked up to 88,800 lots but remains at a low level overall. SHFE aluminum's core trading range is recommended to reference 22,800-23,300. LME aluminum closed at $3,179/mt, down 0.59%, with intraday fluctuations within 3,167-3,196. Prices are far below all key moving averages (MA5=3,187.4, MA10=3,290.35, MA30=3,505.97, MA60=3,528.59). The moving averages are in a bearish alignment, with the medium-term trend clearly weakening. The MACD indicator shows DIF at -106.999 and DEA at -74.075, with a death cross downward and the negative histogram expanding to -65.85, signaling strengthening bearish momentum. LME aluminum's core trading range is recommended to reference 3,150-3,200.

Macro front:An Iranian official said Iran did not attend the technical negotiations originally scheduled for June 29, citing "recent attacks and failure to meet relevant conditions." Sources said the plan to resume US-Iran technical negotiations in Switzerland has stalled due to renewed conflict between the two countries. Latest reports indicate that the US and Iran have reached a consensus to cease mutual strikes and will hold a meeting this week. The two sides will meet in Doha, the capital of Qatar, on Tuesday to discuss disputes concerning the Strait of Hormuz. Iranian Foreign Minister Araghchi stated that within the next 30 days, the Strait of Hormuz will remain under full supervision and management by Iran, and once all obstacles are removed, the waterway's full passage capacity will be restored. Any intervention or unilateral action will worsen the situation and delay the reopening of the strait.

Fundamentals:Supply side, according to SMM data, this week's domestic aluminum production rebounded WoW, mainly driven by the production ramp-up of newly commissioned capacity and resumption of idle capacity. Last week, the proportion of liquid aluminum rose 0.2 percentage points WoW, and casting ingot output further declined. Outside China, high prices previously spurred accelerated commissioning of new projects. As these new projects are energized and ramp up, operating aluminum capacity outside China is expected to rise further WoW. On the inventory front, this week's aluminum inventory continued its smooth destocking trend. As of this Monday, domestic social inventory of aluminum ingot fell by 40,000 mt compared to last Thursday and by 82,000 mt compared to last Monday. Lower aluminum prices and a pickup in downstream buying sentiment drove the destocking. On the exports front, the SHFE/LME price ratio recovered rapidly last week. As of June 25, the ratio had rebounded to 7.29, up 12.2% from the previous low of 6.5. The import loss narrowed to around 3,400 yuan/mt, down nearly 45% from the peak loss of 7,604 yuan/mt. As a result, the profit margins that had been driving large-scale aluminum semis exports shrank sharply, and new orders for some segments already declined. With orders on hand gradually being fulfilled, if export margins cannot recover, aluminum semis exports may face downside risks going forward.

Primary Aluminum Market:In early trading, the SHFE aluminum 2606 contract’s price center ran above the level in the same period of the previous trading day. Influenced by rising aluminum prices and restocking the previous day, overall market purchasing sentiment weakened last Friday. However, as sellers held prices firm near recent lows, transaction and offer prices edged up. Mainstream transactions were executed at a discount of 10-0 yuan/mt against the SHFE July contract. Last Friday, east China shipment sentiment index registered 3.14, up 0.25 MoM; procurement sentiment index stood at 3.00, down 0.16 MoM. Futures aluminum prices fell for days consecutively, leaving the central China market sluggish with strong bearish sentiment, and stockpiling willingness was low on Friday. Downstream processing enterprises preferred warrant or long-term contract transactions, leading to heavy warrant outflows, while suppliers showed weak willingness to hold prices firm, pushing transaction prices steadily lower. In the end, actual transaction prices in central China ranged at a discount of 10-40 yuan/mt against the SHFE July contract. Last Friday, central China shipment sentiment index came in at 2.90, up 0.01 MoM; procurement sentiment index was 2.14, remaining flat MoM.

Aluminum Scrap:Last Friday, SMM A00 spot aluminum closed at 22,880 yuan/mt, down 30 yuan/mt from the previous trading day. The aluminum scrap market showed notable resilience, with only slight corrections. In terms of price spreads, on June 26, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan stood at 1,942 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 1,070 yuan/mt. These spreads continued to narrow over the week as scrap resisted declines and corporate tax burdens grew, with aluminum tense scrap series prices falling by less than wrought aluminum alloy scrap. Supply remained tight, supervision on reverse invoicing policies tightened, and production cuts or shutdowns expanded among small and medium-sized scrap utilization enterprises in Anhui, Jiangxi, Hubei, etc., driving up the scarcity of compliant invoiced aluminum scrap. On the import side, China’s aluminum scrap imports in May totaled 152,000 mt, down 10.88% MoM and down 4.81% YoY. Due to a 1-3 month shipping lag, port arrivals from June to August are expected to remain at low levels. Additionally, the UAE implemented a four-month temporary export ban on aluminum scrap starting June 3, further reinforcing expectations of tight high-quality scrap supply in Asia. Next week, the aluminum scrap market is expected to continue consolidating at elevated levels with a slight downward bias, but downside room is limited. Shredded aluminum tense scrap (priced based on aluminum content) is expected to trade in a mainstream range of 19,300-19,900 yuan/mt (ex-tax). The restrictive effects of the reverse invoicing policy and the lagged contraction in imported aluminum scrap continue to form bottom support, but weak off-season demand and low downstream operating rates cap the upside room. Going forward, attention should focus on the pace of policy compliance, the US-Iran peace talks and progress in Hormuz navigation, the arrival pace of overseas aluminum scrap, and changes in domestic downstream operations.

Secondary aluminum alloy:Spot market: Last Friday, China’s ADC12 market operated steadily with prices unchanged, and SMM ADC12 price held steady at 23,850 yuan/mt from the previous day. As aluminum and cast aluminum alloy futures stopped falling and stabilized, the bearish sentiment from the sustained earlier drop eased, and the market entered a phase of wait-and-see. Demand side, orders at downstream die-casting enterprises remain insufficient, and off-season characteristics continue to show, capping the price rise; but cost side, the difficulty of sourcing compliant aluminum scrap remains considerable, tax invoices and raw material costs stay high, squeezing profit margins of secondary aluminum enterprises, thus providing strong bottom support for ADC12 prices. Under the weak supply-demand structure, the current market has limited momentum to further lower prices. In the short term, ADC12 prices are expected to mainly move sideways. Future attention should still be paid to aluminum price trends, changes in aluminum scrap supply, and the recovery of end-use demand.

Aluminum Market Summary:The US Fed’s hawkish shift boosted the US dollar index, weighing on nonferrous metals prices. The Middle East geopolitical situation showed some repetition but no deterioration signals. Under macro headwinds, aluminum prices both in and outside China fell, with bearish factors dominating in the short term and aluminum prices expected to continue in the doldrums.

[The information provided is for reference only. This article does not constitute direct investment research or decision-making advice. Clients should make decisions prudently and not use this as a substitute for independent judgment. Any decisions made by clients are not related to Shanghai Metals Market.]