Macro rate hike expectations bring periodic pressure, while destocking in China provides solid bottom support

Futures: The most-traded SHFE aluminium contract opened at RMB 24,310 per tonne in the night session on September 10, reached a high of RMB 24,310 per tonne and a low of RMB 24,075 per tonne, and closed at RMB 24,125 per tonne, down RMB 365 per tonne or 1.49 per cent from the previous close. Futures fell sharply, with prices pulling back below multiple short-term moving averages, breaking the bullish pattern. Trading volume increased notably during the session, while open interest dropped sharply, driven mainly by bulls cutting positions and exiting. On the technical front, the 4-hour MACD formed a death cross with green bars emerging, releasing bearish momentum. On September 10, LME aluminium opened at USD 3,355.0 per tonne, reached a high of USD 3,362.0 per tonne and a low of USD 3,272.5 per tonne, and closed at USD 3,274.5 per tonne, down 85.5 or 2.54 per cent from the previous close. Futures retreated after a rapid rise and weakened significantly, with prices breaking below multiple short-term moving averages. Trading volume increased during the day, while open interest rose, driven mainly by bears adding positions. On the technical front, the daily MACD red bars shortened notably, with bullish momentum fading rapidly.

Macro front: US August PPI Y-o-Y came in at 5.4 per cent, above the 5.3 per cent market expectation, while August core PPI M-o-M came in at 0.2 per cent, below the 0.3 per cent market expectation, sending mixed signals as US Fed officials debate whether to raise rates next week. After the PPI data release, the market fully priced in a Fed rate hike in October. According to CME "FedWatch": the probability of the Fed keeping rates unchanged in September is 28.8 per cent, and the probability of a cumulative 25bp hike is 71.3 per cent. The probability of the Fed keeping rates unchanged in October is 17.6 per cent, the probability of a cumulative 25bp hike is 54.8 per cent, and the probability of a cumulative 50bp hike is 27.6 per cent.

Fundamentals: Supply side, this week's weekly aluminium production held steady at 874,700 tonnes, with the proportion of liquid aluminium rebounding 0.15 percentage points to 78.93 per cent, further reducing casting ingot volume. Outside China, production resumptions and new capacity ramp-ups continued, damaged capacity in the Middle East recovered, and aluminium supply outside China kept repairing. 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-tonne mark. This week, the operating rate of leading aluminium downstream processing enterprises in China came in at about 61.3 per cent, up slightly M-o-M. Entering the traditional September peak consumption season, earlier disruptions were gradually cleared, and operating rates across sectors broadly saw recovery-driven growth.

Primary aluminium market: Today, the most-traded SHFE aluminium 2609 contract rose notably from yesterday, but pulled back somewhat near 10:15. Spot transactions remained pressured into discounts, which widened. Trading among traders was also mediocre. Today, SMM A00 aluminium ingot transactions closed at a discount of RMB 30 per tonne to a discount of RMB 10 per tonne. With the mismatch between September peak season expectations and sluggish reality, downstream processing enterprises in the central China market maintained a procurement pace of small volumes on an as-needed basis amid high absolute aluminium prices, cautiously stockpiling and focusing on reducing in-factory inventory. Only trading firms engaging in both spot and futures market made large purchases, while major suppliers showed poor willingness to sell due to the wide discount. Ultimately, the actual transaction price range in the central China market was around a discount of RMB 150-180 per tonne against the 09 contract. Today, aluminium prices were stable, while the spot market weakened. Inventory continued to destock to lower levels, supporting suppliers to generally hold prices firm and slow the pace of shipments in the morning. However, the combination of high absolute prices and a wide spot-futures price spread still exerted greater pressure to liquidate, compounded by localised bearish sentiment, making downward adjustments and increased selling ultimately inevitable. Quotes gradually moved lower, with ample discounted supply in circulation. Downstream remained cautious about high prices with weak purchasing power, and traders also turned cautious, showing no intention of buying at high levels, only pushing for lower prices and buying low on an as-needed basis. With supply increasing and demand decreasing, transaction feedback was poor.

Aluminium scrap: Today, SMM A00 aluminium price closed at RMB 24,560 per tonne, flat W-o-W from the previous trading day, and aluminium scrap market prices also remained stable. In terms of price difference between A00 aluminium and aluminium scrap, on September 10, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,436 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 1,415 per tonne, widening slightly again W-o-W. On the supply side, the tight raw material supply pattern remained unchanged, and the scarcity of compliant, invoiced aluminium scrap continued to rise, constraining the operating rates and procurement of scrap utilisation enterprises. Against this backdrop, some aluminium scrap yards actively sold amid high aluminium prices, while correspondingly reducing purchases and stockpiling, leading to a phased release of circulating supply in the market. The aluminium scrap market is expected to continue consolidating on a strong note next week. At the early stage of the September peak season, a substantive recovery in downstream end-use demand orders still needs to be observed. The active selling behaviour of scrap yards may persist in phases, but the tight supply of high-quality invoiced scrap is unlikely to see substantive improvement. The mainstream operating range for shredded aluminium tense scrap (priced based on aluminium content) is expected to be around RMB 20,700-21,300 per tonne, with close attention needed on the pace of downstream order recovery and the sustainability of scrap yard selling behaviour.

Secondary aluminium alloy: Spot market: Today, ADC12 market prices were mainly stable, with slight upward adjustments in some regions. Cost side, aluminium prices have held up well recently, coupled with rising copper prices, alloy production costs have increased somewhat, providing certain support to prices. Demand side, although entering the traditional "September peak season," some enterprises reported that orders have recovered compared with the earlier period, but the overall improvement remains limited, and the peak season effect has yet to be fully realised, with downstream procurement still mainly driven by rigid demand. Under the dual influence of cost support and limited demand improvement, the industry's overall willingness to adjust prices remains cautious in the short term. ADC12 prices are likely to continue consolidating on a strong note, and further price rises still require observation of the actual release of end-use demand.

Comprehensive outlook: The current market is a mix of bullish and bearish factors. In the short term, expectations for US Fed interest rate hikes are rising, and a stronger US dollar is weighing on metals valuations. Aluminium futures inside and outside China are weakening in tandem, bearish momentum is being released on the technical front, and aluminium prices are facing pullback pressure. In the medium and long term, China's aluminium ingot inventory remains low, and continued destocking provides relatively strong support for aluminium prices at the bottom. Additionally, geopolitical conflicts are pushing up energy prices, creating supply risk premiums. Domestically, the market is entering the September peak season, and processing operating rates are recovering, but the strength of end-user order recovery still needs to be confirmed. Aluminium billet inventory continues to build up, creating potential pressure for inventory to shift to aluminium ingot. Meanwhile, capacity ramp-up from overseas aluminium production resumptions continues, and expectations for looser supply in the longer term remain. Overall, aluminium prices are expected to consolidate under pressure in the short term, with relatively strong support at lower levels in the medium and long term, and repeated market battles within the trading range.

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.