Geopolitical disturbances weaken marginally, accelerating destocking supports aluminum prices to fluctuate upward [SMM Aluminum Morning Meeting Minutes]

6.10 SMM Aluminum Morning Meeting Summary

Futures: SHFE aluminum settled at 23,900 yuan/mt, down 0.67%. Prices further moved away from all moving averages (MA5=24,146, MA10=24,389, MA30=24,483, MA60=24,612), with the moving average system showing an accelerated bearish alignment and divergence, and weakness intensifying. The MACD indicator showed DIF=-142.99, DEA=-97.72, with the death cross downward and the negative histogram expanding to -90.53, as bearish momentum continued to strengthen. Trading volume shrank to 81,600 lots, with the market’s willingness to accept extremely weak. The suggested core trading range for SHFE aluminum is 23,700-24,100. LME aluminum settled at $3,532.5/mt, with prices near MA60 (3,526.37) but far below MA5 (3,589.4) and MA30 (3,600.67), under short-term pressure, with medium and long-term support facing a test. The MACD indicator showed DIF=10.72, DEA=32.30, with the death cross continuing and the negative histogram expanding to -43.17, as bearish momentum strengthened. The suggested core trading range for LME aluminum is $3,500-3,560/mt.

Macro Front: US President Trump stated that US-Iran negotiations have entered the “final phase” and an agreement will be reached in “two to three days.” However, according to US media statistics, Trump has made at least 37 similar statements. US Vice President Vance said that the US will continue to push for an agreement with Iran regardless of whether Israel is willing or not. The Iran nuclear deal will definitely be reached before the midterm elections.

Fundamentals: Supply side, according to SMM data, China’s aluminum production edged down slightly last week, with the proportion of liquid aluminum rebounding 0.12 percentage points WoW, and downstream liquid aluminum demand was moderate. The core focus remains on aluminum semis exports. Downstream processing sectors showed divergence; although in the 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 operating rates showed recovery. Aluminum wire and cable and aluminum extrusion sectors were overall stable. Overall, the weekly operating rate of downstream leaders edged down 0.1 percentage points WoW last week. Inventory side, this Monday, China’s aluminum ingot social inventory was 1.36 million mt, destocking by 26,000 mt from last Monday and 15,000 mt from last Thursday, with the destocking pace continuing to accelerate.

Primary Aluminum Market: Market expectations of US interest rate hikes suppressed the upward channel for SHFE aluminum. Yesterday morning, the SHFE aluminum 2606 contract fluctuated downward, with the overall price center moving lower compared to the previous trading day. In east China, buying sentiment declined somewhat, and overall market selling sentiment was stronger than buying sentiment. The mainstream spot transaction price was at discounts of 70-80 yuan/mt to the SHFE aluminum 06 contract. The east China selling sentiment index was 2.86 yesterday, up 0.01 MoM, while the purchasing sentiment index was 2.80, down 0.2 MoM. SHFE aluminum futures prices continued to decline MoM, with term spreads relatively narrow. Traders in the central China market seized the opportunity to hold prices firm, maintaining high premiums and selling large volumes, and market trading sentiment edged up MoM. Ultimately, the actual transaction prices in central China ranged around a discount of 100-130 yuan/mt against the SHFE aluminum June contract. Yesterday, the selling sentiment index in central China was 2.88, flat MoM; the procurement sentiment index was 2.22, up 0.03 MoM.

Aluminum scrap: Yesterday, the SMM A00 price declined further by 100 yuan/mt from the previous trading day to 23,900 yuan/mt, while the aluminum scrap market remained broadly stable, edging down slightly. Regarding price differences between A00 aluminum and aluminum scrap, on June 9, the price difference in Foshan was 2,458 yuan/mt for mixed aluminum extrusion scrap free of paint and 1,920 yuan/mt for shredded aluminum tense scrap. Supply side, the ‘reverse invoicing’ policy regulation continued to tighten; in some provinces, tax rebates were canceled and tax inspections intensified, leading to higher costs for invoiced raw materials. Some enterprises in regions such as Anhui and Jiangxi already scaled back or halted production. Warehouse inflows at aluminum scrap distribution hubs declined YoY, and inventories of aluminum tense scrap fell due to reduced inflows. Currently, compliance costs in the raw material recycling stage remain high, available invoiced sources continued tight, and invoice scarcity became the core support point for prices. Meanwhile, amid disturbances from US-Iran conflicts, the price spread between Chinese and overseas markets inverted, with scarce imported low-cost, high-quality sources weakening their supplementation to the domestic market. Demand side, the off-season effect emerged, with operating rates of downstream scrap utilization enterprises at low levels, end-user orders following up weakly, and enterprises maintaining purchase-as-needed and low inventory strategies, with cautious procurement sentiment.

Secondary aluminum alloy: Yesterday, the ADC12 market overall showed a wait-and-see attitude, with most enterprises holding their quoted prices firm. The SMM ADC12 price remained flat at 23,900 yuan/mt. On one hand, aluminum and aluminum scrap prices fluctuated less during the week, and the cost side lacked drivers for significant changes. On the other hand, downstream demand was mediocre, with limited order growth. However, the tight supply pattern of compliant raw materials did not see significant relief, and enterprises’ procurement costs remained at relatively high levels, providing strong support for prices. Amid both weak demand and cost support, enterprises had little willingness to adjust prices. In the short term, ADC12 prices are expected to mainly stabilize and consolidate, with subsequent focus on changes in raw material supply and downstream order recovery.

Aluminum market summary: Macro front, Trump again claimed that US-Iran negotiations entered a ‘final stage,’ but the market has grown accustomed to such repeated statements, and the geopolitical risk premium weakened marginally. Fundamentals side, the overseas supply gap is expected to provide strong bottom support for aluminum prices, and expectations of rising energy costs also form a bullish driver. However, the pressure from high domestic inventories remains relatively prominent, expected to limit the upside room for domestic aluminum prices. In the short term, domestic aluminum prices are expected to mainly fluctuate and adjust.

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