Aluminum Inventory Buildup Coupled With Future Capacity Additions; Geopolitical Premium Underpins Prices, Leaving Limited Room for a Rebound [SMM Aluminum Morning Meeting Minutes]

8.4 SMM Aluminum Morning Meeting Minutes

Futures: The most-traded SHFE aluminum 2609 contract closed at 23,730 yuan/mt, up 145 yuan from yesterday’s settlement price, a gain of 0.61%. It opened at 23,620 yuan/mt and fluctuated within 23,535-23,755 yuan/mt during the session. Prices traded above MA5 (23,616.00), MA10 (23,425.50), and MA30 (23,147.67), but below MA60 (23,772.92). Medium and long-term moving averages remained in a bearish alignment and continued to press lower. The structure of consolidating at lows and repairing continued, with the 60-day moving average above forming a key resistance cap. For the MACD indicator, DIF (43.2707) was above DEA (-54.1006), and the MACD red histogram stood at 194.7426. Bearish momentum continued to weaken, while bullish repair momentum further strengthened. The suggested core trading range for SHFE aluminum is 23,300-24,000 yuan/mt. The LME aluminum 3M contract closed at $3,231.00/mt, up 0.12%. It opened at $3,221.00/mt and fluctuated within $3,221.00-$3,231.00/mt during the session. Prices traded above MA5 (3,204.50), MA10 (3,189.15), and MA30 (3,158.23), but below MA60 (3,361.74). Medium and long-term moving averages were in a bearish alignment and gradually pressed lower. Overall, a low-level consolidation and repair structure emerged, with the 60-day moving average above forming a clear cap. For the MACD indicator, DIF (-16.0463) was above DEA (-34.4392), and the MACD red histogram was 36.7858. Bearish momentum continued to weaken, and the rebound from lows remained intact. The suggested core trading range for LME aluminum is $3,150-$3,300/mt.

Macro front: US President Trump said that negotiations with Iran are currently underway. Trump said that regarding the negotiations with Iran, the first phase is reopening the Strait of Hormuz, and the second phase is denuclearization. The Strait of Hormuz may reopen no later than August 4. Trump also said the negotiations were requested by Iran and are being conducted with the support of Saudi Arabia, the UAE, Qatar, and some other countries. Sources said Iran has rejected the US proposal regarding the Strait of Hormuz, insisting it will not fully reopen the Strait of Hormuz before the war ends. Mohsen Rezaei, military adviser to Iran’s Supreme Leader, said Iran will never allow the US to open any non-Iranian shipping routes in the Strait of Hormuz; even if the US deploys warships on illegal routes in the Strait of Hormuz, Iran will treat them as targets. Williams, the “third-in-command” at the US Fed and President of the New York Fed, said current monetary policy is “in a good place,” and inflation is expected to pull back in H2 this year, so the US Fed does not need to rush to adjust interest rates. However, if economic trends deviate from expectations and inflation fails to pull back to the 2% target as scheduled, the US Fed will “absolutely need to take action.”

Fundamentals: Markets outside China: overseas aluminum production resumptions and new capacity continued ramping up as planned, and expectations persisted that the global aluminum market would shift from tightness to looseness in the longer term. Expectations for US Fed interest rate hikes fluctuated, with hawkish views still present, continuing to cap upside room for aluminum prices. However, the Iran-Israel conflict continued to intensify, disruptions to shipping through the Strait of Hormuz persisted, and the market worried that regional aluminum raw material inflows and outbound shipments of finished aluminum could be impeded. The regional geopolitical risk premium remained in place, supply uncertainty persisted, and this provided some downside support for aluminum prices in the short term. China: on the inventory side, as of Monday this week, China’s aluminum social inventory rose 5,000 mt from last Thursday to 958,000 mt, down 21,000 mt from last Monday, with destocking of domestic aluminum ingot somewhat stalling.

Primary aluminum market: In early trading, the center of SHFE aluminum 2608 contract moved lower than the previous trading day, but purchase sentiment in the spot market did not improve noticeably. The transaction center was at a discount of 20 yuan/mt against the SHFE aluminum 2608 contract to parity, with some downstream counteroffers clearly at a discount of 20 yuan/mt. Today, the east China shipments sentiment index was 3.07, down 0.01 MoM; the purchase sentiment index was 2.93, up 0.06 MoM. After the open, SHFE aluminum futures saw a slight correction. Although traders in central China were willing to hold prices firm, weak purchase willingness from downstream processing enterprises weighed on overall market transactions. Only hedging traders intended to purchase in large volumes when discounts were low, widening the price spread for arbitrage. Market quotations edged up, but overall remained at a low level. Ultimately, the actual transaction price range in central China hovered around a discount of 170-190 yuan/mt against the SHFE aluminum 08 contract. Today, the central China shipments sentiment index was 3.2, unchanged MoM; the purchase sentiment index was 2.85, up 0.02 MoM. Today, futures plunged sharply, while south China spot prices barely held steady. Among the three major consumption regions, only Foshan remained in a destocking channel. The break lower in absolute prices instead led holders to generally hold back from selling and refrain from shipments at low levels, but cash-out needs combined with bearish sentiment exerted dual pressure. Some sellers still offered shipments in exchange for a slight discount, creating a drag; mainstream quotations were at a discount of -10 to 0 yuan/mt, and outflows increased somewhat. Demand side, downstream buyers mainly absorbed steadily on dips and did not show willingness to chase the decline with higher volumes. The trading segment only took on low-priced invoices at its usual pace for contract performance and delivery. Demand could provide bottom support but lacked upward impetus. Momentum on both the supply and demand sides was weak, and intraday trading was tepid. Spot transaction prices were concentrated at a premium of 80-120 yuan/mt against the SHFE aluminum 2608 contract.

Aluminum scrap: Today, SMM A00 spot aluminum prices closed at 23,500 yuan/mt, edging down 130 yuan/mt MoM from the previous trading day, and aluminum scrap prices across regions generally followed lower. Regarding the price difference between A00 aluminum and aluminum scrap, on August 3, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,050 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 840 yuan/mt. Against the backdrop of the off-season for consumption, aluminum scrap suppliers generally showed low willingness to sell at low prices, and aluminum scrap prices overall remained firm. Demand side, as the high-temperature holiday approached, the operating rate of downstream cast aluminum alloy enterprises declined and orders shrank; the operating rate of secondary aluminum plate/sheet and strip enterprises was moderate, but overall raw material demand showed a marked drop in support compared with Q2. In the short term, the tight supply of compliant, invoiced cargo on the supply side persisted, and suppliers’ insufficient willingness to sell at low prices provided bottom support for prices. On the import side, the lagged effects of the UAE export ban and the EU tariff hike policy were set to gradually emerge in subsequent months, and port arrivals from June to August remained at low levels. Demand side, the sluggish downstream orders were unlikely to change in the short term; scrap utilization enterprises were highly likely to continue purchasing as needed and maintaining low inventory, and the purchasing atmosphere was unlikely to see a notable improvement.

Secondary aluminum alloy: Spot: Today, ADC12 market quotes showed a trend of consolidating on a subdued note, with SMM ADC12 lowered by 100 yuan/mt. The cost side still provided some support, but futures and the pullback in primary aluminum prices weighed on market sentiment; meanwhile, end-use demand was average, with insufficient orders and weak transaction support. Enterprises’ price adjustments were generally made in line with the market, and the willingness to hold prices firm weakened somewhat. In the short term, ADC12 prices still faced some downward pressure, but cost support remained, and prices were expected to move sideways within a narrow range.

Overall outlook: Recently, the macro front improved somewhat. With expectations for US Fed interest rate hikes staying on hold, the marginal constraint on the nonferrous sector weakened. The proportion of liquid aluminum in China continued to rise, and the Middle East geopolitical risk premium persisted, jointly underpinning aluminum prices; market confidence recovered somewhat in the short term. However, outside China, forward capacity for aluminum continued to come online, and during the traditional off-season, traditional end-use demand in China remained weak. In addition, expectations for US Fed interest rate hikes outside China repeatedly shifted, and ongoing disruptions from uncertainties in the Middle East geopolitical situation persisted. Aluminum prices were expected to consolidate on a strong note, but resistance still remained above.

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