Aluminum market prices to move rangebound amid weak fundamentals and unstable macro sentiment

This week, macroeconomic front was stable overall. Although the US ADP employment data led to increased market expectations for a US Fed rate cut, the Fed's stance on rate cuts remains unclear and has not impacted market sentiment. Domestically, the Chinese government continues to express intentions to boost the economy. In the short term, we should continue to pay attention to the Fed's rate cut stance and the developments in overseas conflicts.

This week, the operating capacity of domestic aluminium continued to rise. As of early July, the total operating capacity of domestic aluminium was approximately 43.27 million mt. In June, the total domestic aluminium output was around 3.555 million mt, a YoY increase of 5.6%, mainly due to increased production in regions such as Yunnan. In terms of ingot production in June, regions like Qinghai and Guizhou saw significant increases. Based on current market expectations for aluminium alloys and feedback from producers, it is expected that domestic ingot production will continue to increase in July. On the cost side, this week, the domestic aluminium cost slightly decreased, mainly due to a general reduction of 100 yuan/mt in prebaked anode prices purchased by aluminium plants in July. Other raw and auxiliary material prices narrowly fluctuated. As of July 4, the real-time cost of domestic aluminium was about 17,906 yuan/mt, down 54 yuan/mt WoW. The real-time profit of domestic aluminium was about 2,473 yuan/mt, up 314 yuan/mt. The import window for domestic primary aluminium remained closed during the week, with long-term contracts being the main form of import. On the demand, the domestic aluminium processing industry maintained a weak operating rate this week, with extrusion producers having few orders. Orders in sectors such as curtain wall panels declined significantly, and some small enterprises reported production halts or reductions. Recently, aluminium prices moved rangebound, and downstream restocked mainly at low prices. However, due to weak industry operating rate, low-price restocking have been insufficient to drive destocking in the industry, and social inventory of aluminium ingots has maintained a slight accumulation.

The model predicts that the SMM A00 spot aluminium average price will trade between 19,785 and 20,555 yuan/mt from July 4 to July 10, with a price center of 20,190 yuan/mt. The extreme price range is expected to be between 19,330 and 20,970 yuan/mt, the normal price range between 19,630 and 20,690 yuan/mt, and the conservative price range between 19,940 and 20,420 yuan/mt. The price trend for next week is expected to be a rise followed by a fall or swing on a strong note. The support range is between 19,630 and 19,940 yuan/mt, and the resistance range is between 20,420 and 20,690 yuan/mt. The model predicts that the most-traded contract closing price will range between 19,875 and 20,775 yuan/mt from July 4 to July 10, with a price center of 20,350 yuan/mt. The extreme price range is expected to be between 19,450 and 21,150 yuan/mt, the normal price range between 19,730 and 20,900 yuan/mt, and the conservative price range between 20,020 and 20,650 yuan/mt. The price trend for next week is expected to swing on a strong note. The support range is between 19,730 and 20,020 yuan/mt, and the resistance range is between 20,650 and 20,900 yuan/mt.

On the macro side, US ADP emoloyment data showed that the downturn in US manufacturing and trade transportation sectors was most significant, with manufacturing industry experiencing negative growth for two consecutive months. Coupled with the continued weakness in recent real estate data, these factors indicate a weak US economy, putting pressure on the US dollar index, thereby boosting the non-ferrous metals market prices. Domestically, due to factors such as the off-season and insufficient demand, the manufacturing PMI in June remained in the contraction territory, with the service and construction sectors declining MoM. On the fundamentals, domestic aluminium operating capacity is slowly rising, with some capacity in Yunnan, Sichuan, and Guizhou still awaiting resumption. However, downstream aluminum processing and end-user demand have entered the off-season, with no significant increase expected in the short term, leaving the aluminum market fundamentals lacking driving factors. However, macro sentiment is highly volatile, and aluminum prices are expected to consolidate in the short term. SMM predicts that next week, the most-traded SHFE aluminum contract prices will fluctuate between 20,020-20,900 yuan/mt, and LME aluminum prices may range between $2,470-2,560/mt. Attention should be paid to changes in macro sentiment and the operating rates of downstream aluminum industry.