Macro front sentiment slightly improves, distant surplus pressure persists

Macro Front

The US-Iran conflict continues to escalate, maintaining disruptions to shipping in the Strait of Hormuz. Regional geopolitical risk premiums persist and supply uncertainties linger. The US CPI monthly rate turned negative for the first time in six years, dampening market expectations of an imminent US Fed rate hike and easing marginal constraints on the nonferrous metals sector.

Fundamentals

In markets outside China, production resumptions and new capacity for aluminium outside China continue to ramp up as planned, sustaining market expectations that global aluminium supply will shift from tight to loose in the long term and persistently limiting upside room for aluminium prices.

However, ongoing Middle East shipping risks continue to stir concerns that regional raw material inflows and finished aluminium outflows could be obstructed; coupled with rising crude oil prices pushing up smelting energy costs outside China, this provides some bottom support for aluminium prices in the short term.

LME visible inventory currently remains low, but the improvement in spot premiums is limited, leaving bulls with insufficient momentum for sustained upward moves. In the Chinese market, inventory side, China’s aluminium social inventory continues its destocking channel, providing strong support for aluminium prices.

Overall assessment

Overall, macro sentiment has improved slightly recently. Sustained Middle East geopolitical risk premiums and ongoing destocking of aluminium ingot in China jointly underpin aluminium prices. However, the continued rollout of aluminium capacity outside China in the long term, weak traditional end-use demand in China, and repeated macro uncertainties create significant pressure on aluminium’s upside room.

Overall assessment: Aluminium prices are expected to maintain a consolidation pattern in the short term. Next week, the most-traded SHFE aluminium contract is expected to trade in the range of RMB 22,800-23,500 per tonne, and LME aluminium is expected to trade in the range of USD 3,150-3,220 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.