7.8 SMM Morning Briefing
Futures: The most-traded SHFE aluminum contract opened at 22,940 yuan/mt in the night session on July 7, with a high of 23,130 yuan/mt, a low of 22,940 yuan/mt, and closed at 23,055 yuan/mt, up 0.50% from the previous close. During this period, prices rebounded from the previous low of 22,250 to close as a bullish candlestick, settling above the short-term MA5 (22,943.90) and MA10 (22,853.82), but still trading below the medium-to-long-term MAs of MA20 (22,945.68), MA40 (23,290.36), and MA60 (23,555.97). All medium-to-long-term MAs maintained a bearish downward alignment; support at the previous low was effective, and downward momentum weakened further. Trading volume during this period was 64,300 lots, shrinking significantly from the previous period. Open interest was 239,000 lots, down 6,639 lots from before, with the futures showing a feature of bear position reductions. From a technical perspective, on the 4-hour MACD, the DIFF (-212.61) was above the DEA (-305.69), with the golden cross structure continuing; the red bar value was 186.17, indicating that bullish momentum continued to expand. However, the overall medium-to-long-term bearish pattern has not been completely reversed. On July 7, LME aluminum opened at $3,113.0/mt, with a high of $3,152.0/mt, a low of $3,103.0/mt, and closed at $3,139.0/mt, up 0.84% from the previous close. During the trading day, prices rebounded from the previous low of 3,040 to close as a bullish candlestick, settling above the MA5 (3,118.72), but still trading below all medium-to-long-term MAs: MA10 (3,146.35), MA20 (3,243.12), MA40 (3,353.47), and MA60 (3,382.97). All-cycle MAs maintained a bearish downward alignment; support at the 3,040 level was solid, and downward momentum continued to contract. Daily trading volume was 19,977 lots, up 4,833 lots from before. Open interest was 600,276 lots, up slightly by 103 lots, with the futures showing modest bullish position building. From a technical perspective, on the daily MACD, the DIFF (-119.6) was below the DEA (-111.38), with the death cross structure continuing; the green bar STICK value was -16.44, indicating that bearish momentum contracted further.
Macro front: Iran's Deputy Foreign Minister Gharibabadi said on social media on the 8th local time that the US cancellation of the waiver for sanctions on Iranian oil sales constitutes a serious violation of Article 10 of the US-Iran Memorandum of Understanding. The subsequent US military actions against Iran also seriously violated Articles 1 and 2 of the same memorandum. According to the CME FedWatch Tool: the probability of the Fed holding rates steady in July is 73.3%, and the probability of a cumulative 25bps hike is 26.7%. For September, the probability of holding rates steady is 32.4%, a cumulative 25bps hike is 52.7%, and a 50bps hike is 14.9%.
Fundamentals: Regional premiums for aluminum outside China strengthened on expectations of tighter supply. By end-June, the SMM Japan MJP aluminum ingot spot premium reached $380/mt, up 123.5% from the end of last year, and the SMM Japan Q3 MJP aluminum ingot premium hit $395/mt, up $309/mt from Q4 2025, surging 359.3%. The SMM Europe P1020A aluminum ingot duty-paid price stood at $547.5/mt, up 62.2% from the end of last year, and the duty-unpaid price was $470/mt, up 64.9% from the end of last year. The SMM US Midwest DDP aluminum premium reached 110.5¢/lb, equivalent to around $2,435/mt, up 18.2% from the start of the year, with an absolute increase of about $374.7/mt. On the inventory front, aluminum ingot inventories in major consumption areas fell by 0.25 from the previous session as of Tuesday, with destocking mainly in Guangdong and Wuxi.
Primary aluminum market: During morning trading, the center of the SHFE aluminum 2606 contract was higher than the same period the previous trading day. Yesterday, selling sentiment strengthened compared with the previous session. Some downstream users were bullish on near-term aluminum prices, lifting buying sentiment slightly, and price acceptance among downstream users improved from the previous day. Mainstream transactions were at parity to a premium of 10 yuan/mt against the SHFE aluminum July contract. Yesterday, the East China selling sentiment index stood at 3.01, up 0.02 from the previous session; the buying sentiment index was 2.80, up 0.01 from the previous session. SHFE aluminum futures continued to rebound. In the central China market, downstream processing enterprises remained reluctant to take orders amid high inventory levels and weak orders, with only a few making small-volume purchases on a need-to basis. Suppliers initially showed little intention to hold prices firm, but later strengthened their stance, and the market discount showed signs of narrowing. Transaction prices in central China were concentrated at a discount of 90-110 yuan/mt against the SHFE aluminum July contract. Yesterday, the central China selling sentiment index was 2.89, down 0.01 from the previous session; the buying sentiment index was 2.10, down 0.01 from the previous session.
Aluminum scrap: Yesterday, SMM A00 spot aluminum closed at 22,940 yuan/mt, up 100 yuan/mt from the previous trading day. The aluminum scrap market followed the rise, with some regional grades catching up on the previous day's gains. On the price spread front, on July 7, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan came in at 1,956 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 642 yuan/mt. It is noteworthy that amid a sharp decline in aluminum prices and tight invoice supply, the price spread for aluminum tense scrap narrowed sharply. Some cast aluminum alloy enterprises have already started using A00 aluminum ingot instead of aluminum scrap as raw material for production. The aluminum scrap market is expected to continue consolidating on a subdued note, with limited downside room. Shredded aluminum tense scrap priced based on aluminum content is expected to trade mainly at 19,200-19,800 yuan/mt (excluding tax). Supply side, the constraints of the reverse invoicing policy are hard to reverse in the short term, and the tight supply of compliant invoiced cargo persists. Import side, the lagged suppression effect from multiple bearish factors on actual port arrivals will gradually unfold in the coming months, with further weakening of import aluminum scrap supplementation. Demand side, amid the deepening off-season, downstream operating rates remain low, and terminal orders show little substantial improvement. Scrap utilization enterprises are likely to continue purchasing as needed and maintain low inventory strategies. The price difference between A00 aluminum and aluminum scrap has narrowed to historical lows, greatly eroding the economic advantage of aluminum scrap over primary aluminum. If aluminum prices continue to decline, the substitution effect will accelerate.
Secondary Aluminum Alloy: Spot side: Yesterday, domestic secondary aluminum alloy market quotes mostly consolidated on a strong note, with SMM ADC12 price up 50 yuan/mt MoM to 24,050 yuan/mt. The rebound in aluminum prices and cost side fluctuating at highs remain the core factors supporting enterprises to hold prices firm. The tight circulation of aluminum scrap and procurement costs staying high limit room for price concessions. However, downstream demand recovery pace is slow, with modest order growth. Some enterprises worry about whether transactions can follow the price hikes, and most still choose to hold steady and wait. Overall, cost support and futures recovery jointly push the price center of ADC12 higher, but the demand side has not yet formed effective cooperation. In the short term, the market is likely to consolidate within a narrow range, with strong resistance to decline but also limited upside room.
Aluminum Market Recap: Macro front, the weak US June non-farm payrolls delayed expectations for US Fed interest rate hikes, and the weaker US dollar provided valuation support for nonferrous metals. However, hawkish remarks by officials reiterating high interest rates and balance sheet reduction limited the downside room for the dollar. The resumption of US-Iran nuclear consultations continued to narrow the geopolitical risk premium, somewhat suppressing upside room for commodities. Meanwhile, expectations for the commissioning of new aluminum capacity outside China form a medium and long-term supply negative. In China, positives stood out, with the proportion of liquid aluminum continuing to rise, warehouse withdrawals of aluminum ingot hitting a four-year high in the past week, and inventory destocking pace significantly accelerating, supporting the bottom of SHFE aluminum. Amid intertwined bullish and bearish factors, the positive from the US dollar overseas and the negatives from supply and geopolitics offset each other. LME aluminum, following a previous excessive decline, saw slowing downside momentum, and is likely to consolidate and repair at lows in the short term. Supported by rapid destocking, the probability of China's market underperforming LME aluminum is low. SHFE and LME may see slight divergence, and a one-sided weak trend is unlikely to persist.
[The information provided is for reference only. This document does not constitute direct advice for investment research decisions. Clients should make decisions cautiously and not substitute this for their independent judgment. Any decisions made by clients are not related to Shanghai Metals Market.]
