Mild Inflation Pullback Eases Macro Anxiety, Production Resumptions Accelerate, and Market Sentiment Turns Around [SMM Aluminum Price Weekly Review]

SMM, August 13:

1. Macro perspective

The latest US inflation data were released. Data from the US Department of Labor showed that US July unadjusted CPI YoY growth slowed to 3.4%, core CPI YoY growth slowed to 2.5%, seasonally adjusted CPI rose 0.1% MoM, and core CPI rose 0.2% MoM, all in line with market expectations. After the release, traders' expectations for a US Fed interest rate hike in September remained broadly stable. US President Trump said that the US is currently "handling the Iran issue quietly" and indicated that rather than launching another large-scale military operation, he prefers to step up economic pressure. Iran is demanding compensation for losses suffered during the past five months of military conflict, while the US has also demanded compensation from Iran and has instructed its representatives to explicitly include this demand in all future negotiations. Iranian Foreign Minister Araghchi said that there are currently no negotiations between Iran and the US, but mediators are still trying to find a way to resume talks. Zolghadr, Secretary of Iran's Supreme National Security Council, said that if the US does not change its behavior, the Strait of Hormuz will remain closed; the precondition for reopening it is that the US meet five conditions, including a permanent halt to military operations against Iran. National Bureau of Statistics: July consumer prices rose 0.5% YoY.

2. Fundamentals

Supply side, China's weekly aluminum production was basically stable over the past week, and the proportion of liquid aluminum rose 0.19 percentage point MoM. Outside China, with newly commissioned projects ramping up and production resumptions advancing, aluminum supply is expected to keep rising. However, the global aluminum ingot destocking trend remains unchanged in the short term. Demand side, the downstream processing industry is in the traditional consumption off-season, and overall operating rates are under pressure; aluminum billet processing fees pulled back, and substitution demand for aluminum ingots weakened. Inventory side, China's aluminum social inventory continued its destocking trend this week. As of Thursday, China's aluminum ingot social inventory fell 19,000 mt from Monday to 898,000 mt and was down 35,000 mt from last Thursday. Aluminum ingot inventory is expected to continue its destocking trend in the short term, but destocking is expected to slow in the second half of the month. Supply outside China: UAE EGA's semiannual results report disclosed the resumption progress at the AlTaweelah aluminum smelter, which was shut down after an attack on March 28. Of the plant's 1,262 pots, 18% have been restarted. Production is expected to return to pre-incident levels in Q1 2027. The alumina refinery's H1 2026 production fell significantly YoY, and its capacity recovered to 50% of pre-incident levels in early July.

Overall, macro front, US July CPI and core CPI YoY growth rates slowed to 3.4% and 2.5%, respectively, both in line with market expectations. The mild pullback in inflation eased market concerns about more aggressive US Fed interest rate hikes. Short-term upward momentum in US Treasury yields weakened, macro liquidity pressure eased somewhat, and, combined with persistent differences over the Middle East situation, these factors provided temporary support for aluminum prices. On the fundamentals side, aluminum ingot inventories continued to destock, but there are expectations for a slowdown in the second half of the month. On the supply side outside China, UAE's EGA disclosed the production resumption progress at the AlTaweelah aluminum smelter. Currently, 18% of the plant's 1,262 pots have already been restarted, and the pace of production resumption has been faster than the market previously expected. The supply tightness premium priced in earlier now faces giveback pressure. Although the macro recovery and continued destocking in the first half of August supported stronger aluminum prices, market sentiment has turned, and aluminum prices are expected to trade under pressure at high levels in the short term, with upside room capped to some extent by production resumption expectations. Next week, the most-traded SHFE aluminum contract is expected to trade in a range of 23,600–24,450 yuan/mt; LME aluminum is expected to trade in a range of $3,180–$3,330/mt. Going forward, close attention should be paid to production resumption progress in the Middle East and developments in commissioning plans for new projects.

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