Geopolitical Conflicts amid Cooling Inflation, Aluminum Prices Strong with Limited Upside Room [SMM Aluminum Morning Meeting Minutes]

7.15 SMM Aluminum Morning Meeting Minutes

Futures: : The most-traded SHFE aluminum 2608 contract closed at 23,165 yuan/mt, down 45 yuan or 0.19% from yesterday’s settlement price. It opened at 23,350 yuan/mt intraday and fluctuated in the range of 23,165–23,380 yuan/mt. The price was trading above the MA5 (23,107.00) and MA10 (22,967.50) but below the MA30 (23,493.83) and MA60 (24,101.25). The short- and medium-term moving averages are in a bearish alignment and gradually pressing down, presenting a pronounced overall structure of consolidating on a subdued note, with the moving averages above forming layers of resistance and pressure. The MACD’s DIF (-256.1830) remains above the DEA (-340.0955), and the MACD histogram stands at 167.8250, indicating that bearish momentum has eased. The recommended core trading range for SHFE aluminum is 22,800–23,400 yuan/mt. The LME aluminum 3M contract closed at $3,177.00/mt, up 0.32%. The price was trading above the MA5 (3,171.20) and MA10 (3,144.40) but below the MA30 (3,294.12) and MA60 (3,446.86). The short- and medium-term moving averages are in a bearish alignment and gradually pressing down, presenting a pronounced overall structure of consolidating on a subdued note, with the moving averages above forming clear resistance. The MACD’s DIF (-77.4920) remains above the DEA (-95.2152), and the MACD histogram is at 35.4463, indicating that bearish momentum has eased and the downside momentum has slowed. The recommended core trading range for LME aluminum is $3,100–3,200/mt. The MACD’s DIF (-102.06) has crossed above the DEA (-109.89), forming a golden cross, and the histogram has turned from green to red. Bearish momentum has converged, bullish momentum has officially kicked in, and a short-term rebound trend has been established.

Macro front: On July 14, the US military continued strikes against multiple locations in Iran, while Iran continued to target US military bases. US President Trump stated that trade and investment deals between Gulf nations and the US will replace the 20% fee on cargo passing through the Strait of Hormuz. The US will impose a “full blockade” on Iran, with the Strait of Hormuz open to all vessels except Iranian ones. Iran’s military stated it will make no concessions on the Strait of Hormuz issue. Iran’s parliament proposed a bill on the security of the Strait of Hormuz. The US Central Command said the US military resumed the maritime blockade of vessels entering and exiting Iranian ports and coastal areas at 4:00 p.m. EDT on July 14. US June inflation surprised to the downside. Data from the Bureau of Labor Statistics showed that US June CPI rose 3.5% YoY, and core CPI rose 2.6% YoY, both markedly lower than the previous readings and below market expectations. US June CPI fell 0.4% MoM, the first MoM decline in six years, and the drop was far larger than the market expectation of 0.1%. After the data release, traders pushed back their bets on a Fed rate hike to October. Warsh Kevin attended his first semi-annual congressional hearing as Fed Chairman. Warsh demonstrated a tough 'hawkish' stance, stating he has 'zero tolerance' for the persistently high inflation that has lasted five years, and explicitly rebuffed market views that the fight against inflation was 'mission accomplished' due to the MoM decline in June CPI. Facing pressure from the Trump administration to cut interest rates, Warsh refused to provide forward guidance, emphasizing that the Fed would adhere to independent decision-making based on economic data.

Fundamentals: In markets outside China, geopolitical tensions continued to escalate, the management issue of the Strait of Hormuz remained unresolved, making it difficult for cargo navigation to fully recover in the near term, and the geopolitical risk premium persisted. The US June CPI fell 0.4% MoM, the first monthly decline in six years and significantly larger than market expectations of a 0.1% drop. The Fed delayed its rate hike, but its hawkish stance remained firm, and it is expected to maintain the tightening trend. In the Chinese market, exports of unwrought aluminum and aluminum extrusions continued their brisk trend in June, reaching 711,000 mt, surpassing the 700,000 mt mark for the first time. This was up 12.5% MoM from 632,000 mt and up 45.4% YoY from 489,000 mt.

Primary Aluminum Market: The SHFE aluminum 2606 contract traded with a higher center in early trading compared with the same period the previous trading day. Affected by higher aluminum prices, buying sentiment in the market was weak today, with just-in-time procurement dominating. Transactions were concluded at discounts of 10-20 yuan/mt against the SHFE aluminum August contract. The east China market's selling sentiment index stood at 3.08 today, flat MoM; the buying sentiment index was 3.16, also flat MoM.

The off-season in July coupled with high temperatures kept operating rates at downstream processing enterprises in the central China market low, and buying sentiment remained subdued. However, with relatively large premiums/discounts, traders were motivated to hedge and push discounts wider to earn spreads, leading to higher buying interest. Suppliers also showed a notable willingness to sell at firm prices, driving market discounts higher. Ultimately, actual transaction prices in the central China market centered around discounts of 130-170 yuan/mt against the SHFE aluminum August contract. Today, the central China market’s selling sentiment index was 2.81, down 0.02 MoM; the buying sentiment index was 2.23, up 0.01 MoM.

Aluminum Scrap: SMM A00 spot aluminum closed at 23,270 yuan/mt today, up 270 yuan/mt from the previous trading day. The aluminum scrap market generally followed the rise by 150-200 yuan/mt. Supply-side constraints continued to intensify, and the impact of the reverse-invoicing policy deepened further. Reports emerged in Shandong that reverse invoicing would be suspended from July, while production cuts and shutdowns among small and medium-sized scrap utilization enterprises in Anhui, Jiangxi, Hubei, and other regions spread, further increasing the scarcity of compliant and invoiced aluminum scrap. Import side, the scarcity of high-quality overseas supplies caused by the earlier price spread inversion between Chinese and overseas markets, combined with a 1-3 month shipping lag, kept port arrivals at low levels in June-August. Meanwhile, the UAE's scrap aluminum export ban and the EU's tariff hike policy further tightened overseas scrap aluminum supply.

This week, the aluminum scrap market is expected to continue a narrow sideways pattern defined by demand suppression and cost support. The mainstream trading range for shredded aluminum tense scrap (priced based on aluminum content) is expected around 19,900-20,500 yuan/mt. The pullback in spot primary aluminum prices limited the room for further narrowing of the price difference between A00 aluminum and aluminum scrap. The economic advantage of aluminum scrap over primary aluminum is unlikely to disappear in the short term, and demand-side price support for aluminum scrap remains. If aluminum prices continue to decline further, the substitution effect of primary aluminum for scrap will accelerate.

Secondary aluminum alloy: Spot market: Pricing sentiment in the ADC12 market was divided today. Rising costs prompted some enterprises to attempt price hikes, while others still opted to keep their quotes stable for the time being. The atmosphere of the traditional consumption off-season is deepening, downstream orders and transactions remained weak, and price increases face some resistance. Against the backdrop of insufficient demand support, enterprises generally focused on market watching and stable-price shipments. In the short term, ADC12 spot prices are expected to continue showing a pattern of coexisting cost support and demand suppression, mainly moving sideways in a narrow range.

Aluminum market summary: : Recurring geopolitical conflicts in the Middle East kept risk premiums in place, and coupled with the MoM decline in US CPI for June, delayed expectations for US Fed interest rate hikes supported aluminum prices to hold up well. However, the continuous launch of overseas aluminum capacity will continue to weigh on the upside room of aluminum prices, with significant pressure limiting any further upside. Overall, in the short term, aluminum prices will maintain a pattern of consolidating on a strong note while encountering resistance.

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