China continues destocking, coupled with recovering peak-season demand; aluminium prices are expected to consolidate at highs with an upward bias next week

1. Macro perspective

The US-Iran conflict escalated sharply. On September 9, Iran's Revolutionary Guard struck multiple oil tankers and merchant vessels in the Strait of Hormuz, causing a significant drop in strait traffic. Brent crude broke through USD 100 per bbl, closing at USD 101.21, while WTI settled at USD 96.05, sharply lifting energy costs for overseas smelting. Fed Chairman Walsh's debut at the Jackson Hole symposium signalled a hawkish stance, and with August nonfarm payrolls beating expectations, CME showed the probability of a 25bp rate hike in September rising to around 60 per cent. US Treasury yields surged, and the US dollar index hit a 13-month high, pressuring base metals. Next week, attention turns to the US CPI on September 11 and the FOMC meeting on September 15-16.

2. Fundamentals

Outside China, aluminium production resumptions continued to ramp up, and expectations of looser supply in the longer term persisted. However, LME inventory stood at only 245,000 tonnes, an extremely low historical level. Combined with surging oil prices lifting costs and the blockage of the Strait of Hormuz, geopolitical supply risk premiums rebounded. In China, the "September peak season" saw broad-based recovery across sectors, with social inventory continuing to destock, falling to 796,000 tonnes on September 10, breaking below the 800,000 tonnes mark.

3. Overall assessment

On the macro front, rate hike expectations and a strong US dollar are exerting pressure, but the escalating US-Iran conflict and oil prices breaking USD 100 are lifting costs and geopolitical premiums. On the fundamentals side, continued destocking in China combined with recovering peak-season demand provides solid downside support. Aluminium prices are expected to consolidate at highs with an upward bias next week, with the most-traded SHFE aluminium contract trading in the range of RMB 24,300-25,000 per tonne and LME aluminium at USD 3,280-3,400 per tonne.

Note: This article has been issued by SMM and has been published by AL Circle with its original information without any modifications or edits to the core subject/data.