SMM, June 18:
Macro perspective: The boots of the US-Iran ceasefire have landed, and the geopolitical premium is rapidly receding; the US Fed held steady but sent more hawkish signals than expected.
Outside China, the macro front underwent a major shift this week. Trump announced on June 14 that the US-Iran peace agreement had been "officially completed," and the memorandum of understanding for the ceasefire had been electronically signed by both parties, with the official signing ceremony set for June 19. He also stated that the Strait of Hormuz would be "fully open" from the 19th. The realization of the peace agreement meant that the geopolitical premium that had supported LME aluminum prices for months faced a systematic reassessment, and market sentiment swooned accordingly. Meanwhile, the US Fed held its June FOMC meeting this week (June 17-18), leaving the benchmark interest rate range unchanged at 3.50%-3.75% as expected, marking the fourth consecutive pause. However, the dot plot released alongside it sent a significantly stronger-than-expected hawkish signal. The new Fed Chairman, Kevin Warsh, stressed at his first press conference the priority of achieving price stability and hinted that policy shifts would depend on data confirmation. The Fed’s hawkish turn, combined with US May CPI exceeding 4% YoY, fueled expectations of macro liquidity tightening, which weighed on the entire nonferrous metals complex.
Fundamentals: Supply expectations improved outside China, while the pace of destocking in China visibly accelerated.
Outside China, after the ceasefire agreement was reached, expectations for the resumption of navigation through the Strait of Hormuz quickly reshaped the supply logic in the global aluminum market. The opening of the Strait of Hormuz would offer some near-term improvement in the physical shipments of aluminum products from the Middle East, but its actual boost to the recovery of local smelting capacity remains limited. At the same time, amid a high aluminum price environment, new capacity outside China was released ahead of schedule, causing the LME aluminum Cash-3M premium structure to narrow significantly—the premium fell from a historical high of +$104.6/mt on June 1 to -$1.5/mt on June 17, shifting from backwardation to contango. In China, fundamentals showed positive signals this week. As of Thursday, SMM-reported social inventory of domestic aluminum ingots stood at around 1.255 million mt, down 57,000 mt from the previous Thursday, with the destocking pace notably quicker than in the prior period, reinforcing the sustained destocking trend.
Overall:
As the geopolitical premium fades rapidly with the implementation of the US-Iran peace deal and expectations of new project start-ups outside China loom, LME aluminum faces significant near-term pressure. The Fed’s hawkish dot plot has tilted the global macro front to a more bearish stance, exerting downward pressure on aluminum prices. In China, the faster destocking pace was the biggest bright spot this week, though absolute inventory levels remain in the elevated range. SHFE aluminum followed LME aluminum lower in the absence of new macro bullishness, but the decline was relatively contained, supported by domestic destocking.
Moving forward, close attention should be paid to: the progress of actual production resumptions at Middle East aluminum enterprises after full navigation resumes in the Strait of Hormuz; the US dollar trend and its transmission to commodities after the US Fed’s hawkish signals materialize; and whether China’s inventory destocking continues to accelerate. Next week, the most-traded SHFE aluminum contract is expected to trade in the range of 23,300–24,000 yuan/mt, and LME aluminum is expected to trade in the range of $3,250–3,450/mt.
[The information provided is for reference only. This article does not constitute direct investment, research, or decision-making advice. Clients should make decisions prudently and not use it as a substitute for their own independent judgment. Any decisions made by clients are not associated with SMM.]
