Middle East Situation Temporarily Calms Down, Aluminum Prices Fluctuate at Highs for Adjustment [SMM Aluminum Morning Meeting Minutes]

6.9 SMM Morning Briefing

Futures: SHFE aluminum closed at 24,125 yuan/mt, edged up 0.15%, with price far below all key moving averages (MA5=24,273, MA10=24,380, MA30=24,518.67, MA60=24,637.5). The moving averages maintained a bearish alignment, and the weak pattern remained unchanged. The MACD indicator showed DIF=-114.2, DEA=-86.16, with a death cross downward and the negative histogram widening to -56.08, indicating strengthening bearish momentum. Trading volume shrank to 47,000 lots, with sluggish market activity. The recommended core trading range for SHFE aluminum is 23,900-24,300. LME aluminum closed at $3,601.5/mt, down 0.17%, with price slightly below MA30 (3,604.33) but above MA60 (3,527.53), under short-term pressure but with medium-term support intact. The MACD indicator showed DIF=25.82, DEA=38.8, with the death cross persisting, the negative histogram widening to -25.97, and bearish momentum strengthening. The recommended core trading range for LME aluminum is 3,570-3,630.

Macro front: The sudden escalation of the Middle East situation temporarily subsided. In the early hours of June 8 Beijing time, Iran attacked Israel again after a two-month interval, and Israel retaliated subsequently. US President Trump urged Israel and Iran to cease mutual attacks immediately, stating that the blockade on Iran would continue until an agreement is reached. After multiple rounds of mutual strikes, Iran's armed forces announced the end of this round of military operations against Israel, and Israel subsequently announced a temporary halt to attacks on Iran. Yemen's Houthi forces announced a ban on Israel-related ships in the Red Sea.

Fundamentals: Supply side, according to SMM data, China's aluminum production edged down last week. The proportion of liquid aluminum rebounded WoW by 0.12 percentage points last week, and downstream demand for liquid aluminum was moderate. The key focus remains on aluminum semis exports. The downstream processing sector showed divergence. Although in the consumption off-season, strong export demand in some sectors partially offset weak domestic demand. The weekly operating rates of secondary alloy, aluminum plate/sheet and strip, and aluminum foil weakened, while primary alloy operations recovered. The aluminum wire and cable and aluminum extrusion sectors generally stabilized. Overall, the weekly operating rate of downstream leading enterprises edged down 0.1 percentage point WoW last week. In terms of inventory, as of Monday, domestic social inventory of aluminum ingot stood at 1.36 million mt, destocking 26,000 mt from last Monday and 15,000 mt from last Thursday, with the destocking pace continuing to accelerate.

Primary aluminum market: Driven by stronger-than-expected US non-farm payrolls data, which reinforced expectations of US rate hikes, the US dollar index rose, pushing SHFE aluminum down under pressure. In the morning session, the SHFE aluminum 2606 contract fluctuated downward, with the overall price center significantly lower compared to the previous trading day. Buying sentiment in east China recovered somewhat as lower aluminum prices prompted downstream restocking on dips. The mainstream spot transaction price was at a discount of 80–100 yuan/mt against the SHFE aluminum June contract. The selling sentiment index in east China was 2.85 yesterday, down 0.06 from the previous day, while the buying sentiment index reached 3.00, up 0.16 from the previous day. Yesterday, as aluminum futures prices pulled back, suppliers in central China showed significantly firmer sentiment in holding prices and holding back from selling, keeping offered premiums elevated. However, because downstream processing enterprises had actively built large inventories last week, they are now mainly digesting stocks, and buying sentiment yesterday edged down from last Friday. The actual transaction price range in central China was at a discount of 130–150 yuan/mt against the SHFE aluminum June contract. The selling sentiment index in central China was 2.87 yesterday, up 0.01 from the previous day, and the buying sentiment index was 2.20, down 0.02 from the previous day.

Aluminum scrap: Yesterday, SMM A00 price slumped by 200 yuan/mt from the previous trading day to 24,000 yuan/mt, and the aluminum scrap market broadly followed the decline. On the price spread side, on June 8, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 2,390 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 1,960 yuan/mt. Supply side, ongoing tightening of “reverse invoicing” policy oversight, the cancellation of tax rebates in some provinces, and stricter tax audits have pushed up the cost of invoice-backed raw materials. Some enterprises in regions such as Anhui and Jiangxi have already seen production cuts or shutdowns. Warehouse inflows at aluminum scrap distribution centers fell YoY, and inventories of aluminum tense scrap series declined due to reduced arrivals. Compliance costs in the raw material recycling process remain high, available invoice-backed supplies continue to be tight, and invoice scarcity has become the core price support factor. Meanwhile, the price spread between Chinese and overseas markets is inverted amid US-Iran conflict disruptions, and imports of low-priced high-quality supplies are scarce, weakening the supplement to the domestic market. Demand side, the off-season effect is becoming evident, with operating rates at downstream scrap utilization enterprises staying low, end-user orders sluggish, and enterprises maintaining a strategy of purchasing as needed and low inventories, resulting in cautious procurement sentiment. Aluminum scrap prices are expected to continue to hold up well at high levels with a volatile pattern. Tight supply of compliant invoice-backed goods will persist, providing bottom support for prices. The lagged contraction effect of imported aluminum scrap has not yet fully materialized, port arrivals will remain low, and import supplements are limited under the pattern where overseas markets outperform the domestic market. At the same time, as the off-season deepens, the sustainability of orders for scrap utilization enterprises is worrisome. They continue to purchase as needed and hold low inventories, and procurement sentiment is unlikely to improve markedly. Industry invoicing risks remain high, expectations of supply-side contraction are strengthening, while weak downstream demand exerts downward pressure, resulting in an overall pattern of both supply and demand weakening.

Secondary aluminum alloy: Spot side, the pricing atmosphere in the secondary aluminum alloy market was generally cautious yesterday, with SMM ADC12 price flat at 23,900 yuan/mt. Affected by the decline in aluminum prices and futures, some enterprises chose to follow the market and lower prices by 100 yuan/mt. However, most enterprises, considering that the cost side of aluminum scrap still offers some support and raw material price adjustments are relatively limited, maintained stability and adopted a wait-and-see approach for the time being. In the short term, on the cost side, the shortage of invoices and tightening compliance supervision are unlikely to ease soon, and raw material and tax costs will remain high. On the supply side, if the invoice shortage continues to escalate, the scale of production cuts in the industry will expand further. Combined with low social inventory and the closure of the import window, spot circulation is unlikely to see a significant increase. However, the demand side remains weak, capping price increases. In the short term, downside room for ADC12 prices is limited, and an upward breakout also lacks effective support from the demand side. Prices are expected to move sideways overall.

Aluminum Market Summary: Against the backdrop of geopolitical risks in the Middle East, market wait-and-see sentiment is expected to persist. Overseas supply gaps are expected to provide strong bottom support for aluminum prices, and expectations of rising energy costs are also forming bullish drivers for aluminum prices. However, high inventory pressure in China remains relatively prominent and is expected to limit the upside room for domestic aluminum prices. In the short term, domestic aluminum prices are expected to mainly fluctuate and adjust.

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