LME squeeze heats up, aluminium prices consolidate on a subdued note

Futures: SHFE aluminium closed at RMB 22,620 per tonne in the daytime session, edging down 0.13 per cent. Futures retreated after a rapid rise, facing resistance at MA5 (22,675), and remained below MA10 (22,878) and MA30 (23,166), with the overall bearish structure unchanged. The MACD lines (DIF=-239.98, DEA=-197.03) formed a death cross below the zero axis; although the green bar narrowed to -85.91, weakness remained evident. Trading volume shrank to 101,100 lots, reflecting a strong wait-and-see sentiment. The core trading range for SHFE aluminium is suggested at 22,200-22,800. LME aluminium closed at USD 3,025.0 per tonne, tumbling 1.74 per cent. The rebound stalled, with prices falling back below MA5 (3,055.1), MA10 (3,060.0), and MA30 (3,055.7), returning to a weak trend. The MACD indicator formed a death cross below the zero axis, with the red bar turning green (-9.08), signaling a bearish shift in short-term momentum. Trading volume expanded to 26,900 lots, with selling pressure re-emerging. The core trading range for LME aluminium is suggested at 3,000-3,060.

Macro front: Ministry of Commerce spokesperson He Yadong stated at a regular press conference that the "30 billion for 30 billion" reciprocal tariff reduction framework is conducive to stabilising and expanding bilateral trade between China and the US, and both sides are maintaining close communication on its implementation. Regarding economic and trade consultations, China and the US are maintaining close communication on issues of respective concern in areas such as trade and investment, with relevant progress to be announced in due course.

Fundamentals: Supply side, China's aluminium production remained basically stable with almost no growth, and replacement projects only released sporadic output; overseas, nearby supply has evolved into the most severe squeeze in decades. This week, LME aluminium inventory fell to 226,700 tonnes, with a cumulative year-to-date decline of 56 per cent. Demand side, the aluminium processing industry PMI fell below the 50 mark to 48.9 per cent in October. With the October peak season over and the proportion of liquid aluminium declining MoM, demand and supply pressures are gradually becoming evident. October exports of unwrought aluminium and aluminium semis totalled 593,900 tonnes, down 62,000 tonnes or 9.5 per cent from 656,000 tonnes in September. Moreover, the market widely expects November exports to continue declining MoM amid inverted domestic and overseas prices, adding another downward revision to Q4 demand expectations. Inventory side, according to SMM statistics, as of this Thursday, China's social inventory of aluminium ingot destocked by 18,000 tonnes from this Monday and by 32,000 tonnes from last Thursday.

Primary aluminium market: East China market: During the previous trading day's daytime session, the bid-ask spread for the SHFE aluminium 2611 contract fluctuated significantly in early trading. The market largely quoted against the SHFE aluminium 2612 contract, and SMM also quoted against the 2612 contract yesterday. Some quotes against the SHFE aluminium November contract were at premiums of RMB 30-60 per tonne, while quotes against the SHFE aluminium 2612 contract were at premiums of RMB 340-400 per tonne. The average premium was RMB 370 per tonne. Based on the closing price spread between futures contracts at a BACK of RMB 340 per tonne, converting 2612 contract quotes to the 2611 contract, quotes were at parity to a premium of RMB 60 per tonne, with an average premium of RMB 30 per tonne. Central China market: SHFE aluminium futures rebounded again yesterday, but prices remained in a low absolute price range compared with earlier levels. Trading sentiment in the central China market warmed slightly WoW from the previous day, with downstream processing enterprises making small bargain-hunting restocking purchases, while suppliers' willingness to hold prices firm remained evident. Ultimately, actual transaction prices in the central China market centered around premiums of RMB 270-300 per tonne against the SHFE aluminium December contract. South China market: Aluminium prices surged yesterday, pushing the spot market into an extreme state. Regional aluminium ingot inventory fell sharply for consecutive days to historically low levels. With absolute prices halting losses and rebounding, bullish sentiment strengthened further, and suppliers became even more inclined to hold prices firm and hold back from selling. Mainstream premium quotes stayed high, and spot circulation had become tight. Restocking demand was steadily released, and purchases for delivery were also followed through, yet circulation still failed to meet demand. Combined with aggressive price-raising purchases, the situation of "market without prices" was severe, with quotes diverging significantly across different time periods. Spot transaction prices concentrated at premiums of RMB 670-710 per tonne against the SHFE aluminium 2612 contract.

Aluminium scrap: Yesterday, SMM A00 aluminium price was reported at RMB 23,110 per tonne, rebounding RMB 420 per tonne from the previous trading day. The aluminium scrap market actively followed the decline, with Henan and other regions catching up on the previous day's losses, while some regions and categories remained stable with a wait-and-see stance. On the price difference front, primary aluminium fell sharply mid-week. On November 11, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan narrowed to RMB 2,022 per tonne (down RMB 70 per tonne from last Thursday), and the price difference between A00 aluminium and shredded aluminium tense scrap was once compressed to RMB 174 per tonne (narrowing RMB 294 per tonne from last Thursday), hitting a new low on top of last week's "historical low." On November 12, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 2,318 per tonne; the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 470 per tonne, remaining in a historically low range. Supply side, tax inspections in multiple regions continued to deepen, with no easing in the scarcity of compliant, invoiced aluminium scrap. Enterprises holding invoices showed strong willingness to hold prices firm. When primary aluminium fell consecutively early in the week, aluminium scrap quotes generally held stable with a wait-and-see stance. Regions such as Henan that had lagged in declines only caught up mid-week, and the actual nationwide decline was significantly smaller than that of primary aluminium. Demand side, off-season characteristics became fully evident. With aluminium scrap costs staying high and finished product prices difficult to raise, processing margins struggled to cover rising raw material costs. Scrap utilisation enterprises' willingness to chase high prices weakened notably, with purchases dominated by small rigid-demand orders. In the short term, the aluminium scrap market is expected to continue consolidating at highs. Tight compliant invoice supply is unlikely to ease in the near term, and rigid costs form a solid floor, but alloy plants' capacity to accept high-priced raw materials is limited, significantly compressing the upside for aluminium scrap. Key focuses ahead: the spread of tax inspections and changes in invoicing quotas across regions; if primary aluminium weakens while scrap holders hold prices firm, the price spread may narrow again, reviving the logic of primary aluminium replacing scrap; the pace of downstream operating rate declines during the off-season, and macro sentiment swings ahead of the December FOMC meeting.

Secondary aluminium alloy: Yesterday, ADC12 market quotes moved up overall, with mainstream prices raised by RMB 200 per tonne. The rebound in primary aluminium and futures boosted sentiment, and the market followed with price increases. Downstream inquiries increased, and trading volume was moderate. In the short term, raw material costs such as aluminium scrap still provide bottom support for prices, but end-use demand shows no significant growth, and price rises lack sustained momentum. ADC12 is expected to move sideways in a narrow range, with direction depending on primary aluminium trends and aluminium scrap supply changes. Key tracking ahead: downstream restocking pace and transaction follow-through.

Comprehensive outlook: The current market is driven by three forces: expectations for a distant surplus from new overseas capacity and Middle East production resumptions, together with expectations for US Fed interest rate hikes, are jointly pressuring the price center; China's low inventory continuing to destock and the historic overseas squeeze provide downside support. The combined result is that SHFE aluminium consolidates on a subdued note with limited room for deep declines, while LME aluminium is supported by nearby contract squeezes, with the nearby end notably stronger and the curve maintaining deep backwardation. However, after the November contract expires, the tail risk of bulls rolling over positions and premiums being given back cannot be ignored.

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