SMM July 30:
1. Macro Perspective
The US Fed announced on Wednesday that it held rates steady at 3.50%-3.75%, marking the fifth consecutive meeting with no change. According to the CME FedWatch Tool, after the Fed’s decision, the probability of rates remaining unchanged in September and October increased, and the marginal constraint on the nonferrous metals sector continued to ease. The Strait of Hormuz dispute remains unresolved; according to foreign media reports, the temporary truce between the US and Iran shifted again. Foreign Ministry Spokesperson Lin Jian said at a regular press conference that China’s stance on China-US economic and trade issues is consistent and clear; China opposes all forms of unilateral tariff measures, and a tariff war or trade war serves the interests of neither side.
2. Fundamentals
Regarding markets outside China, production resumptions and new capacity for aluminum outside China continued to ramp up as planned. Market expectations for the global aluminum market to shift from tight to loose over the long term persisted, continuously limiting upside room for aluminum prices. However, the US-Iran conflict was still escalating, and disruptions to shipping in the Strait of Hormuz persisted. The market worried about disrupted inputs of regional aluminum raw materials and outbound shipments of finished aluminum. Combined with rising crude oil prices pushing up energy costs for smelting outside China, regional geopolitical risk premiums remained. Supply uncertainty persisted, providing some floor support for aluminum prices in the short term. In the Chinese market, on the supply side, the proportion of liquid aluminum in China continued to rise. On the inventory side, China’s aluminum social inventory destocked by 53,000 mt WoW to 953,000 mt last Thursday, and destocked by 26,000 mt compared to Monday. The destocking pace accelerated again at month-end, with inventory falling below 1 million mt, forming strong support for aluminum prices. On the export front, the SHFE/LME price ratio continued to repair this week. As of July 30, the SHFE/LME price ratio had rebounded to 7.4, up 13.8% from the prior low of 6.5, and the import loss narrowed to around 3,300 yuan/mt, a contraction of over 45% from the prior maximum loss of 7,604 yuan/mt.
In Summary, the macro front improved recently, with the marginal constraint of interest rate hike expectations on the nonferrous metals sector continuing to ease. The proportion of liquid aluminum in China kept rising, Middle East geopolitical risk premiums persisted, and China’s aluminum ingot inventory continued to destock, jointly underpinning aluminum price movement. Short-term market confidence strengthened markedly. However, the continued rollout of long-term aluminum capacity outside China, weak end-use demand in China, combined with shifting expectations for US Fed interest rate hikes and uncertainty from the Middle East geopolitical situation, still put some pressure on upside room for aluminum prices. In the short term, aluminum prices are expected to consolidate on a strong note; next week, the most-traded SHFE aluminum contract is expected to move within a range of 23,000-24,150 yuan/mt, and LME aluminum within a range of $3,100-$3,250/mt.
[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 substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]
