Technical rebound combined with destocking support; Marginal supply increase limits aluminium price upside

Futures: SHFE aluminium closed at RMB 23,300 per tonne, up 1.44 per cent. Prices broke firmly above MA5 (23,057) and MA10 (23,082), but upside remains capped by MA30 (23,802) and MA60 (23,772), with the overall move representing a strong rebound after oversold conditions. Although the MACD lines (DIF=-265.99, DEA=-229.00) remain below the zero axis, the green bars narrowed sharply to -73.98 (previous day -156.23), indicating a significant decline in bearish momentum and the initial emergence of a technical bullish divergence. Trading volume reached 102,100 lots, reflecting active bottom-fishing. The suggested core trading range for SHFE aluminium is 23,000-23,800. LME aluminium closed at USD 3,037.5 per tonne, up 0.35 per cent. Prices have stabilised above MA5 (3,026.7) and MA10 (3,024.9), but remain well below MA30 (3,148.6) and MA60 (3,205.4), with the medium-term downtrend intact. The MACD lines (DIF=-56.52, DEA=-56.71) formed a golden cross below the zero axis, with the histogram turning positive (+0.37), signalling exhausted bearish momentum and a clear short-term repair signal. The suggested core trading range for LME aluminium is 3,000-3,050.

Macro front: Reports indicate that Israeli Prime Minister Netanyahu instructed the military earlier in October to plan a new large-scale offensive against Iran, with targets including civilian infrastructure such as power plants and nuclear facilities. The plan was ultimately not implemented due to opposition from US President Trump to resuming hostilities before the November midterm elections. A White House spokesperson reiterated that the US would not attack Iran at any time before the midterm elections. Iranian Foreign Minister Araghchi stated that the US and Israel may launch a new war against Iran again, and that Iran is fully prepared and on high alert.

Fundamentals: Ex-China, aluminium production resumptions and new capacity ramps continue to advance, with expectations of ample supply in the forward curve weighing on futures sentiment. Although LME aluminium inventory has fallen to a historic low of 238,400 tonnes, macro conditions remain pressured by expectations of tightening ex-China liquidity. In China, social inventory briefly built up during the National Day holiday before resuming its decline. According to SMM statistics, as of this Thursday, China's aluminium ingot social inventory fell by 24,000 tonnes WoW from Monday and by 53,000 tonnes WoW from last Thursday, with the post-holiday seasonal inventory buildup shifting back to destocking, confirming consumption resilience. However, marginal changes warrant caution: China's September proportion of liquid aluminium fell short of expectations, and October is expected to pull back slightly, with casting ingot output rising MoM and marginal supply of aluminium ingot increasing. In addition, China exported 558,600 tonnes of aluminium semis in September, up 1.2 per cent MoM from 552,100 tonnes in August, exceeding market expectations and showing continued resilience in export consumption.

Primary aluminium market: Central China market: SHFE aluminium futures prices stabilised, but end-use demand and high premiums limited buying sentiment among downstream processing enterprises in central China, with market trading activity remaining sluggish. Some suppliers, believing that contract price spreads are about to converge, tended to sell quickly to clear inventory, showing limited willingness to hold prices firm. Ultimately, actual transaction prices in the central China market were centered around a premium of RMB 140-160 per tonne against the SHFE aluminium November contract. East China market: SHFE aluminium futures edged up during the day yesterday, while market trading sentiment weakened. However, the nearby-month BACK spread remained firm, and some suppliers were reluctant to sell at low prices, though actual transactions showed weakening. Yesterday, SMM A00 aluminium ingot spot transactions closed at a premium of RMB 270-290 per tonne. South China market: Aluminium prices edged up in the previous trading session, with the spot market showing signs of bottoming out. The futures spread structure showed stability between the current and next month, with expansion between the current and far months. With expectations that the current-month basis has been weakening continuously, market participants began to diverge: some intended to hold prices firm and slow the pace of shipments, while others continued to actively cut prices and liquidate first, with actual discounts still appearing relatively abundant in circulation. The increase in absolute prices was relatively small, and purchasing demand was moderate; the basis pullback stimulated increased market participation, with many buying at discounts to replenish inventory, and transactions improving. Spot transaction prices were concentrated at a premium of RMB 185-225 per tonne against the SHFE aluminium 2611 contract.

Aluminium scrap: In the previous trading session, SMM A00 aluminium closed at RMB 23,610 per tonne, rebounding RMB 80 per tonne from the previous trading day. Aluminium scrap prices generally followed with an increase of RMB 50 per tonne, though some regions remained on the sidelines with no price adjustments. On the price difference front: On October 21, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was approximately RMB 2,107 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was approximately RMB 553 per tonne. Supply side, tax inspections in central China continue to deepen, with compliant invoiced aluminium scrap becoming increasingly scarce and invoiced suppliers showing strong willingness to hold prices firm. Competition among enterprises is intense, with some enterprises only able to issue 20 per cent of their quota, keeping actual effective supply tight. In the short term, the aluminium scrap market is expected to hold up well, with limited downside. Supply side, the scope and intensity of tax inspections remain the core variable, and the tight supply pattern of compliant invoiced cargo is unlikely to change. Demand side, downstream scrap utilisation enterprises are currently operating at moderate rates during the peak season, and under the dual-tight supply-demand pattern, price support is expected to strengthen further. In addition, the price difference between A00 aluminium and aluminium scrap has narrowed again to historical lows, weakening the economic advantage of aluminium scrap and bringing the issue of primary aluminium substitution back to the discussion table. Going forward, close attention should be paid to the spread of tax inspections, changes in invoicing quotas across regions, and the pace of downstream operations.

Secondary aluminium alloy: In the previous trading session, the ADC12 market was generally stable with a wait-and-see stance. SMM ADC12 market quotes remained unchanged from the previous day at RMB 24,500 per tonne. Although aluminium prices rebounded, the rebound was limited, and bullish sentiment has not yet clearly recovered, leaving enterprises with insufficient momentum to increase quotes. Meanwhile, with prices holding steady overall yesterday, downward pressure on the market has not yet clearly emerged, and enterprises' willingness to cut prices has also weakened. Demand side, downstream purchases remain primarily need-based, with overall market transactions performing moderately, and demand support is not enough to push prices further upward. Overall, ADC12 prices are expected to move sideways in the short term, with close attention needed on aluminium price fluctuations, raw material cost changes, and actual improvements in downstream purchasing demand.

Comprehensive outlook: SHFE aluminium futures showed strong performance overnight, rising 1.44 per cent to break above MA5 and MA10, with MACD green bars narrowing sharply and initial bullish divergence emerging, while expanded trading volume indicates active bottom-fishing. Macro front, rising expectations for US Fed interest rate hikes, a strong US dollar, and high US Treasury yields continue to pressure valuations of nonferrous metals. Fundamentals, ex-China production resumptions and new capacity launches weigh on futures sentiment, but continued destocking in China still supports aluminium prices at the bottom.

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.