Aluminum prices to continue to fall due to weak market sentiment and poor demand

This week, the macro front released some bullish information but met market expectations. The PBOC lowered the one-year and five-year loan prime rates, followed by several Chinese banks announcing cuts in deposit rates. Some banks in Shanghai and Beijing began to lower mortgage rates, gradually increasing market liquidity. Overseas, the Bank of Canada cut rates again, and European Central Bank officials indicated that two more rate cuts by the end of the year are not excluded. The US Fed's rate cut expectations have also strengthened. However, most of this news was in line with previous market expectations and did not provide strong momentum for aluminum prices.

This week, the operating capacity of domestic aluminum was around 43.37 million mt. Recently, there has been a slight resumption of production in Sichuan, with companies completing upgrades and sufficient power supply during the rainy season. The province's capacity awaiting resumption has increased, and it is expected that the operating capacity of domestic aluminum will continue to rise slightly. Cost side, the overall cost of domestic aluminum remained largely stable this week. As of July 25, the real-time cost of domestic aluminum was about 17,912 yuan/mt. Throughout the week, spot aluminum prices continued to decline, and the real-time profit of domestic aluminum decreased significantly. As of July 25, the average profit of domestic aluminum was about 1,098 yuan/mt, down 563 yuan/mt WoW. Import side, according to customs data, the net import volume of primary aluminum in June maintained a MoM decline. The net import volume of primary aluminum in June was 114,200 mt, up 102.5% YoY, but down 24.41% MoM. In terms of import trade methods and countries of origin, the primary aluminum flowing into China in June was mainly long-term contracts, and it is expected that there will be no significant increase in July. Demand side, the operating rate of domestic downstream aluminum sector remained weak this week. Recently, aluminum prices continued to fall, and the willingness of end-users such as the photovoltaic sector to place orders has increased, leading to some improvement in the operating rate of industrial material producers. However, in the plate/sheet & strip sector, new orders were few, and the operating rate remained weak. The pick-up from warehouses of aluminum ingots improved slightly during the week, but as July is about to end, sellers increased their need to recoup funds, leading to more market shipments. The spot market for aluminum ingots still maintained a discount.

The model predicts that the SMM A00 aluminum average price will range between [18,715, 19,520] yuan/mt from July 26 to August 1, with a price center of 19,100 yuan/mt. The extreme price range is [18,180, 20,060] yuan/mt, the normal price range is [18,540, 19,700] yuan/mt, and the conservative price range is [18,890, 19,340] yuan/mt. The price trend for next week is expected to be sideways or swing on a soft note. The support range is [18,540, 18,890] yuan/mt, and the resistance range is [19,340, 19,700] yuan/mt. The model predicts that the most-traded aluminum contract closing price will range between [18,760, 19,745] yuan/mt from July 26 to August 1, with a price center of 19,220 yuan/mt. The extreme price range is [18,130, 20,370] yuan/mt, the normal price range is [18,550, 19,950] yuan/mt, and the conservative price range is [18,970, 19,540] yuan/mt. The price trend for next week is expected to move sideways or swing on a soft note. The support range is [18,550, 18,970] yuan/mt, and the resistance range is [19,540, 19,950] yuan/mt.

Overall, on the macro side, the preliminary July PMI figures were released in Europe and the US during the week, showing that the manufacturing PMI data for July remained below 50%, indicating continued weak economic data. Domestically, the National Development and Reform Commission planed to allocate around 300 billion yuan in ultra-long-term special bonds to support large-scale equipment upgrades and trade-in, which is favorable for subsequent demand for aluminum semis and end-users. Fundamentals side, domestic supply is slowly increasing, and the proportion of aluminum liquid is unlikely to rebound significantly, keeping the ingot production ample. Demand side, it remains in the off-season, and end-users need further demand stimulation to transmit orders to the aluminum processing industry. The destocking of the social inventory of aluminum ingots is not performing well, with inventory remaining at high levels for the same period. Aluminum prices have been continuously declining, and based on the current spot aluminum prices of 19,000 yuan/mt, 14% of the domestic operating capacity is already in a loss. In the short term, with cautious macro sentiment and weak fundamental support, the aluminum market may fall until there is a significant improvement in end-user demand. SMM expects the most-traded SHFE aluminum contract to fluctuate between 18,760-19,745 yuan/mt next week, and LME 3M aluminum to fluctuate between $2,220-2,360/mt. Continued attention is needed on downstream consumption both domestically and internationally, as well as changes in macro sentiment.