China continues destocking, coupled with recovering peak-season demand; aluminum prices are expected to consolidate at highs with an upward bias next week [SMM Aluminum Price Weekly Review]

SMM, September 10:

1. Macro perspective

The US-Iran conflict escalated sharply. On September 9, Iran's Revolutionary Guard struck multiple oil tankers and merchant vessels in the Strait of Hormuz, causing a significant drop in strait traffic. Brent crude broke through $100/bbl, closing at $101.21, while WTI settled at $96.05, sharply lifting energy costs for overseas smelting. Fed Chairman Walsh's debut at the Jackson Hole symposium signaled a hawkish stance, and with August nonfarm payrolls beating expectations, CME showed the probability of a 25bp rate hike in September rising to around 60%. US Treasury yields surged, and the US dollar index hit a 13-month high, pressuring base metals. Next week, attention turns to the US CPI on September 11 and the FOMC meeting on September 15-16.

2. Fundamentals

Outside China, aluminum production resumptions continued to ramp up, and expectations of looser supply in the longer term persisted. However, LME inventory stood at only 245,000 mt, an extremely low historical level. Combined with surging oil prices lifting costs and the blockage of the Strait of Hormuz, geopolitical supply risk premiums rebounded. In China, the "September peak season" saw broad-based recovery across sectors, with social inventory continuing to destock, falling to 796,000 mt on September 10, breaking below the 800,000 mt mark.

3. Overall assessment

On the macro front, rate hike expectations and a strong US dollar are exerting pressure, but the escalating US-Iran conflict and oil prices breaking $100 are lifting costs and geopolitical premiums. On the fundamentals side, continued destocking in China combined with recovering peak-season demand provides solid downside support. Aluminum prices are expected to consolidate at highs with an upward bias next week, with the most-traded SHFE aluminum contract trading in the range of 24,300-25,000 yuan/mt and LME aluminum at $3,280-3,400/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 not use this as a substitute for independent judgment. Any decisions made by clients are not related to SMM.]