Low inventory supports aluminium prices to consolidate at highs; Peak season recovery pace awaits verification

Futures: The most-traded SHFE aluminium contract opened at RMB 24,590 per tonne in the night session on September 9, reached a high of RMB 24,660 per tonne and a low of RMB 24,565 per tonne, and closed at RMB 24,650 per tonne, up RMB 90 per tonne or 0.37 per cent from the previous close. Futures consolidated at highs, with moving averages maintaining a bullish alignment and prices trading above moving averages across all timeframes.

Trading volume during the session shrank somewhat, while open interest pulled back slightly, driven mainly by bear position reductions. On the technical front, the 4-hour MACD golden cross extended, and bullish momentum remained intact. On September 9, LME aluminium opened at USD 3,335 per tonne, reached a high of USD 3,364.5 per tonne and a low of USD 3,321.5 per tonne, and closed at USD 3,360 per tonne, up 26.0 or 0.78 per cent from the previous close.

Futures extended their firm rise, with prices climbing steadily and the close holding above all short-term moving averages. Trading volume pulled back on the day, while open interest increased, driven mainly by bull position additions. On the technical front, the daily MACD red bars continued to expand, and bullish momentum remained strong.

Macro front: The US Treasury said that under its expanded Treasury buyback program, it will purchase up to USD 6 billion of long-term government bonds in its first operation. The US 30-year Treasury yield rose above 5.30 per cent intraday. According to CME "FedWatch": the probability of the US Fed keeping rates unchanged through September is 39.8 per cent, while the probability of a cumulative 25bp hike is 60.2 per cent. The probability of the US Fed keeping rates unchanged through October is 28.3 per cent, the probability of a cumulative 25bp hike is 54.3 per cent, and the probability of a cumulative 50bp hike is 17.3 per cent.

Fundamentals: Most industrial extrusion producers remain optimistic about future order growth, but although orders related to energy storage and new energy vehicles are currently expanding well, they face issues of low processing fees and long payment collection cycles. Some industrial extrusion enterprises plan to moderately control the scale of such order intake going forward to safeguard processing profitability and ease cash flow pressure.

Overall, construction extrusion has yet to show clear signs of improvement, while industrial extrusion is showing initial signs of recovery. The industry as a whole is in a pattern of mild recovery, and China's aluminium extrusion operating rate is expected to continue edging up slightly this week. On the inventory front, aluminium ingot inventory in mainstream consumption areas in China stood at 796,000 tonnes this Thursday, down 6,000 tonnes W-o-W from this Monday and down 19,000 tonnes W-o-W from last Thursday.

Primary aluminium market: The most-traded SHFE aluminium 2609 contract rose today compared with the same period yesterday, and spot was pressured into discount transactions. Today, SMM A00 aluminium ingot traded at a discount of RMB 20 per tonne to parity. Aluminium futures rallied again in the night session. In the central China market, pre-market quotes were relatively low, and traders tended to restock aggressively at deep discounts.

With Friday approaching, downstream processing enterprises showed recovering sentiment in purchasing and stockpiling, and overall market trading sentiment warmed, driving quotes gradually higher. Final transaction prices in the central China market were around a discount of RMB 110-150 per tonne against the SHFE aluminium September contract.

Aluminium prices surged today, and the spot market remained resilient. Although the destocking speed has slowed recently, actual arrivals have been supplemented mainly by imported aluminium, which has had a relatively limited effect on improving spot liquidity. Most suppliers, based on low inventory levels and bullish expectations, held prices firm and sold slowly with only slight downward adjustments.

Some unilateral high-level cash-outs did not cause an impact, and circulation pressure remained controllable. High prices pressured downstream users to maintain just-in-time procurement only, while traders, constrained by insufficient liquidity, gradually accepted firm prices and bought. Large players entered the market again to lift prices and purchase, adding the finishing touch, and transactions were overall satisfactory.

Aluminium scrap: Today, SMM A00 aluminium price closed at RMB 24,560 per tonne, up another RMB 100 per tonne from the previous trading day. Aluminium scrap market prices followed the rise across the board, with some regions and categories catching up on the gains of the previous two days. In terms of price differences, on September 9, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,636 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 1,415 per tonne, widening further W-o-W.

On the import side, the impact of the UAE export ban and the EU tariff hike policy continued, with the contraction in European and Middle Eastern supply sources unchanged. High-quality scrap with invoices remained tight overall, and room for import growth was limited. A substantive recovery in end-use demand still needs to be observed, and the digestion of wrought aluminium alloy scrap inventory still requires time.

Scrap utilisation enterprises are likely to continue purchasing as needed and maintain low-inventory operating strategies, with the pace of following price increases expected to remain slow. Next week, the aluminium scrap market is expected to consolidate on a strong note with the price centre shifting slightly upward. The mainstream operating range for shredded aluminium tense scrap (priced based on aluminium content) is expected to centre around RMB 20,300-21,000 per tonne, with close attention needed on the pace of downstream order recovery.

Secondary aluminium alloy: Spot market: Today, the ADC12 market held up well overall, with the SMM ADC12 price rising RMB 100 per tonne from the previous day to RMB 24,450 per tonne. The price adjustment momentum came mainly from two aspects: first, cost support strengthened, as raw material prices stayed high and tax invoice policies tightened in some regions, with comprehensive cost pressure on enterprises continuing to rise; second, demand improved marginally, with market orders recovering somewhat from the earlier period, but the extent was limited and the demand boost was moderate.

Overall, the industry remains in a pattern driven primarily by costs, supplemented by mild demand recovery. Enterprises' willingness to hold prices firm has increased somewhat, but room for further price increases still depends on the actual realisation of peak-season demand going forward.

Comprehensive outlook: US non-farm payrolls significantly exceeded expectations, and expectations for US Fed interest rate hikes rose again. Repeated disturbances from macro tightening expectations have created periodic pressure on aluminium price rises.

Domestically, the low-inventory pattern of aluminium ingots continued, with inventory maintaining a destocking trend. The spot market provided strong support for aluminium prices and remains the dominant factor in the current market. The demand side has entered the traditional September peak season, with processing enterprises seeing a recovery in operating rates, but a full recovery in end-user orders still requires time, and the actual fulfilment of the peak season remains to be observed. Meanwhile, aluminium billet inventory continues to build up, posing a potential risk of transmission to the aluminium ingot side.

The supply of aluminium outside China continues to recover, further constraining the upside room for aluminium prices. From the futures perspective, SHFE aluminium shows a strong technical pattern but with weakening upward momentum at the margin, and insufficient trading volume limits the strength of an upward breakout, with SHFE and LME trends diverging. In the short term, aluminium prices are expected to consolidate on a strong note.

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.