Expectations for US Fed Interest Rate Hikes Remain; Geopolitical Premium Bolsters the Resilience of Aluminum Prices at the Bottom [SMM Aluminum Morning Meeting Minutes]

7.14 SMM Aluminum Morning Meeting Minutes

Futures:The most-traded SHFE aluminum 2608 contract closed at 23,075 yuan/mt, up 75 yuan from the previous settlement price, a gain of 0.33%. It opened at 23,040 yuan/mt during the session and fluctuated within the range of 23,025-23,160 yuan/mt. The price traded above MA5 (23,042.00) and MA10 (22,864.50), but below MA30 (23,543.17) and MA60 (24,138.33). Short- to medium-term moving averages were in a bearish alignment and continued to edge lower. The overall structure of consolidating on a subdued note was evident, with moving averages across cycles forming layered overhead resistance. For the MACD indicator, DIF (-303.1975) was above DEA (-364.8229), and the MACD red histogram stood at 123.2509, indicating some easing in bearish momentum. The suggested core trading range for SHFE aluminum was 22,600-23,400 yuan/mt. The LME aluminum 3M contract closed at $3,158.00/mt, up 0.02%. The price traded below MA5 (3,161.70), MA10 (3,135.05), MA30 (3,311.17), and MA60 (3,452.88). Short- to medium-term moving averages were in a bearish alignment and continued to edge lower. The overall structure of consolidating on a subdued note was evident, with moving averages forming clear overhead resistance. For the MACD indicator, DIF (-85.0133) was above DEA (-99.7896), and the MACD red histogram was 29.5525, indicating some easing in bearish momentum and a slowdown in the downward trend. The suggested core trading range for LME aluminum was $3,100-3,200/mt.

Macro front:US President Trump posted on social media that he would reimpose a “blockade against Iran.” The measure would apply only to Iranian vessels or clients, restricting their entry to and exit from the Strait of Hormuz, while all other countries could use the strait fairly and openly. Trump also said the US would charge a 20% fee on all cargo transported through the strait, and that related procedures and deployment work would begin immediately. US President Trump said the US would continue strikes against Iran. Trump has formally notified Congress that the Iran conflict has reignited. The US military announced that it would begin a maritime blockade against Iran at 16:00 Eastern Time on July 14. Iran said it would never allow the US to interfere in the management of the Strait of Hormuz, and warned that if the conflict expanded in the region, the flames of war would engulf all countries in the region. US Fed Governor Waller said that if core inflation prints high again this week, the US Fed would need to consider a near-term rate hike.

Fundamentals:Markets outside China, geopolitical conditions repeatedly shifted and the management of the Strait of Hormuz remained unresolved, lifting the geopolitical premium. Outside China, aluminum production resumptions and new capacity continued to be released, and incremental supply in the global aluminum market gradually materialized. Long-term expectations that the global aluminum market would shift from tightness to looseness continued to heat up, significantly capping upside room for spot premiums of spot aluminum outside China and putting LME aluminum prices under medium and long-term pressure. Meanwhile, expectations for US Fed interest rate hikes persisted, continuing to cap the upside in aluminum prices. In the Chinese market, on the inventory side, domestic aluminum ingot inventory continued to destock. In terms of inventory, yesterday domestic aluminum ingot inventory in major consumption hubs stood at 1.078 million mt, down 20,000 mt from last Thursday and down 52,000 mt WoW from last Monday.

Primary aluminum market: In early trading, the center of SHFE aluminum 2606 contract trading was below the level at the same time in the previous trading day. Affected by the decline in aluminum prices, today’s market buying sentiment rose WoW. Market transactions were at parity to a premium of 10 yuan/mt against the SHFE aluminum 07 contract, while offers against the SHFE aluminum 08 contract hovered around a discount of 20 yuan/mt to parity. Today, the east China market shipments sentiment index was 3.08, up 0.04 WoW; the buying sentiment index was 3.16, up 0.06 WoW. Today, trading sentiment in the central China market stayed high. Trading firms engaging in both spot and futures market tended to purchase large volumes at low discounts; boosted by this, market quotes rose gradually. However, downstream processing enterprises were constrained by insufficient end-user orders, and buying sentiment remained sluggish, with a wide divergence from traders’ purchase prices. Ultimately, the actual transaction price range in the central China market hovered around a discount of 100-130 yuan/mt against the SHFE aluminum 08 contract. Today, the central China market shipments sentiment index was 2.83, down 0.01 WoW; the buying sentiment index was 2.21, up 0.04 WoW.

Secondary aluminum materials: Today, SMM A00 spot aluminum prices closed at 23,000 yuan/mt, down 120 yuan/mt from the previous trading day. The aluminum scrap market generally followed the decline, while some grades in certain regions stabilized and stayed on the sidelines. Supply-side constraints continued to tighten, and the impact of the reverse invoicing policy further deepened. In Shandong, news emerged that reverse invoicing would be suspended starting in July. In Anhui, Jiangxi, Hubei and other regions, production cuts and shutdowns spread among small and mid-sized scrap utilization enterprises, further increasing the scarcity of compliant, invoiced aluminum scrap. On the import side, due to a 1-3 month shipping lag, the low port arrivals from June to August persisted, as the earlier inverted price spread between Chinese and overseas markets had led to a shortage of high-quality supply outside China. Meanwhile, the UAE’s ban on aluminum scrap exports and the EU’s tariff hike policy further strengthened the contraction effect on overseas aluminum scrap supply. The aluminum scrap market is expected to continue a move sideways pattern this week, with demand capping gains and costs providing support. The mainstream trading range for shredded aluminum tense scrap (priced based on aluminum content) was around 19,900-20,500 yuan/mt. The pullback in spot primary aluminum prices meant the price difference between A00 aluminum and aluminum scrap narrowed again but with limited room, and the relative cost advantage of aluminum scrap versus primary aluminum is unlikely to disappear in the short term, with demand-side price support for aluminum scrap still in place. If aluminum prices continue to decline further, the substitution effect of primary aluminum for aluminum scrap will accelerate.

Secondary aluminum alloy: Spot market: Today, ADC12 market quotes generally consolidated on a subdued note, with SMM ADC12 prices down 100 yuan/mt from the previous trading day. The pullback in aluminum prices and the weakening cast aluminum alloy futures weighed on market sentiment, while enterprises’ quotation centers moved lower in tandem with the cost side. Meanwhile, downstream demand continued to soften, and market trading was relatively subdued, further dampening enterprises’ willingness to hold prices firm. Overall, against the backdrop of weakening cost support and more pronounced off-season demand characteristics, the ADC12 market is expected to mainly move sideways within a narrow range on a weaker note in the short term.

Outlook Summary:Overall, the recent escalation risk of Middle East geopolitical conflicts has expanded the risk premium, coupled with continued destocking of aluminum ingots in China, supporting aluminum prices to hold up well. However, continued capacity additions outside China and the US’s strong US dollar policy are expected to keep capping upside room for aluminum prices, with clear pressure on the upside. In summary, aluminum prices are expected to maintain a pattern of consolidating on a strong note while encountering resistance to rise in the short term.

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