Middle East situation adds new uncertainties, aluminum prices continue in the doldrums [SMM Aluminum Morning Briefing]

7.1 SMM Morning Meeting Minutes

Futures: SHFE aluminum daytime session closed at 22,610 yuan/mt, edging up 0.11%. The price is far below all key moving averages (MA5 ≈ 22,876, MA10 ≈ 23,323.5, MA30 = 24,021.67, MA60 = 24,425.75), with the moving average system in a bearish alignment and diverging, keeping the weak pattern unchanged. The MACD indicator shows DIF = -451.31 and DEA = -317.07, with a bearish crossover pointing downward. The negative histogram narrowed to -268.49 (previous day -273.16), indicating bearish momentum has slightly weakened but remains high. Trading volume shrank to 114,500 lots, and selling pressure in the market has eased somewhat. The suggested core trading range for SHFE aluminum is 22,400-22,800. LME aluminum closed at $3,095/mt, down 0.32%, with intraday fluctuations between 3,094.5 and 3,103. The price is far below all key moving averages (MA5 = 3,136.4, MA10 = 3,220.75, MA30 = 3,471.8, MA60 = 3,514.03), and the moving averages are in a bearish alignment, extending the weakness. The MACD indicator shows DIF = -124.67 and DEA = -92.37, with a bearish crossover pointing downward. The negative histogram narrowed to -64.59 (previous day -72.07), and bearish momentum has slightly weakened. The suggested core trading range for LME aluminum is 3,080-3,130.

Macro front: New uncertainties emerged in the Middle East. Iranian Foreign Ministry spokesperson Baghaei stated that Iran has "basically no plan to hold meetings at any level with the US side in the coming days." Baghaei noted the activities likely to take place in Doha on July 1 will mainly focus on the implementation of the memorandum of understanding's terms. Qatari Foreign Ministry spokesperson Ansari said the US presidential envoy and Trump's son-in-law visited Qatar, but this did not include direct negotiations with the Iranian side.

Fundamentals: Supply side, according to SMM data, China's aluminum production rebounded WoW this week, mainly driven by production ramp-up at newly commissioned capacity and resumption of idle capacity. Last week, the proportion of liquid aluminum rose 0.2 percentage points WoW, and casting ingot volume further declined. Outside China, previously high prices stimulated accelerated commissioning of new projects, and as these new projects are energized and ramp up production, operating aluminum capacity outside China is expected to further rebound MoM. Inventory side, this week aluminum inventory continued its smooth destocking trend. As of this Monday, China's aluminum ingot social inventory decreased by 40,000 mt from last Thursday and by 82,000 mt from last Monday. The weakening aluminum price prompted a recovery in downstream buying sentiment, driving the destocking of aluminum ingots. Export side, last week the SHFE/LME price ratio rapidly recovered, sharply narrowing the profit margin that had been driving large volumes of aluminum semis exports. New orders for some segments have already declined, and as orders on hand are gradually fulfilled, aluminum semis exports face the risk of reduction if export margins cannot recover later.

Primary Aluminum Market: In early trading, the SHFE aluminum 2606 contract's center ran below the level seen at the same time the previous trading day. Weighed down by the falling aluminum prices, some sellers held back from selling yesterday, and overall willingness to sell weakened somewhat. Market buying sentiment was sluggish, and overall buying sentiment in the market declined somewhat yesterday. Mainstream market transactions were at parity to a premium of 10 yuan/mt against the SHFE aluminum July contract. Yesterday, the east China market selling sentiment index closed at 2.88, down 0.29 from the previous day; the buying sentiment index was 2.76, down 0.10 from the previous day. Yesterday, SHFE aluminum futures plunged, and the trading atmosphere in the central China market remained sluggish. Downstream processing enterprises exhibited a notable sentiment of rushing to buy amid continuous price rise and holding back amid price downturn, mostly staying on the sidelines. Moreover, as the last trading day of June, many processing plants took inventory and digested inventories, with low buying interest. The sharp drop in absolute prices also reduced suppliers' willingness to sell. Ultimately, actual transaction prices in the central China market centered around a discount of 20-40 yuan/mt against the SHFE aluminum July contract. Yesterday, the central China market selling sentiment index was 2.87, down 0.03 from the previous day; the buying sentiment index was 2.11, down 0.02 from the previous day.

Aluminum Scrap: Yesterday, SMM A00 spot aluminum closed at 22,500 yuan/mt, down 440 yuan/mt from the previous trading day, and the overall scrap aluminum market followed the decline. By product category, bare bright aluminum wire and mixed aluminum extrusion scrap free of paint dropped by as much as 400 yuan/mt, old scrap fell by 300 yuan/mt, and aluminum tense scrap generally fell by 200 yuan/mt. As for the price spread, on June 30, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan stood at 1,780 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 670 yuan/mt. The supply side remained tight, and supervision of the reverse invoicing policy tightened further. Small and medium-sized scrap utilization enterprises in Anhui, Jiangxi, Hubei, and other regions continued to reduce or halt production, pushing up the scarcity of compliant duty-paid aluminum scrap. On the import side, due to a 1-3 month lag in shipping schedules, port arrivals of aluminum scrap are expected to stay at low levels from June to August. Additionally, the UAE imposed a 4-month temporary export ban on aluminum scrap starting June 3, further intensifying expectations of tighter supply of high-quality scrap in Asia. This week, the aluminum scrap market is expected to remain in the doldrums at high levels, but with limited downside room. The mainstream range of shredded aluminum tense scrap (priced based on aluminum content) is expected to operate between 19,300 and 19,900 yuan/mt (tax-exclusive). Constraints from the reverse invoicing policy and the delayed contraction in imported aluminum scrap will continue to form bottom support, while weak off-season demand and low downstream operating rates will cap upside room. Going forward, attention should be paid to the pace of policy compliance, US-Iran peace talks and the progress of navigation in the Strait of Hormuz, the pace of overseas aluminum scrap arrivals, and changes in downstream operating rates in China.

Secondary Aluminum Alloy: Yesterday, ADC12 market offers continued to decline overall, with SMM ADC12 price falling 150 yuan/mt from the previous day to 23,800 yuan/mt. SHFE aluminum and cast aluminum alloy futures weakened, suppressing spot offers, with enterprises following suit with price cuts. Meanwhile, the decline in procurement costs for aluminum scrap was relatively limited, and together with tight tax invoices and persistent spot resource tightness, cost support remained in place, leading to pronounced sentiment of holding back from selling at low prices. Overall, although ADC12 prices have pulled back dragged by futures, cost support and spot tightness have limited the decline, while divergence in market quotes persisted. In the near term, ADC12 prices are expected to mainly consolidate on a subdued note, but the downside room is relatively limited.

Summary of aluminum market trends: The dispute over control of the Strait of Hormuz continues, and uncertainty remains over the resumption of transit through the strait. The Fed's hawkish pivot bolstered the US dollar index, suppressing nonferrous metal prices. Under macro headwinds, aluminum prices in and outside China declined. In the short term, bearish factors dominate, and aluminum prices are expected to remain in the doldrums.

[The information provided is for reference only. This article does not constitute direct investment research decision-making advice. Clients should make decisions cautiously and should not substitute this for independent judgment. Any decisions made by clients are not related to SMM.]