US treasury yields continue to hit new highs, hawkish US Fed expectations drag aluminium prices down

Futures: The most-traded SHFE aluminium 2610 contract closed at RMB 24,150 per tonne, up RMB 110 or 0.46 per cent from yesterday's settlement price. It opened at RMB 24,120 per tonne during the day and fluctuated in the range of RMB 24,075-24,195 per tonne. Prices traded below MA5 (24,205.00) and MA10 (24,312.50), and above MA30 (24,065.00) and MA60 (23,616.83). The short-term rebound structure has been partially repaired, while the consolidation pattern continues, with short-term moving averages above forming key resistance.

The MACD DIF (123.0407) is below DEA (150.9039), and the MACD green bar stands at -55.7263, indicating bulls' momentum remains weak. The suggested core trading range for SHFE aluminium is RMB 23,800-24,600 per tonne. The LME aluminium 3M contract settled at USD 3,249 per tonne, down 0.11 per cent. It opened at USD 3,251.50 per tonne during the day and fluctuated in the range of USD 3,249.00-3,254 per tonne. Prices traded below MA5 (3,256.80), MA10 (3,290.40), and MA30 (3,268.10), and above MA60 (3,212.94).

The short-term upward structure continued to face resistance, with a sideways consolidation pattern emerging and short-term moving averages above forming clear pressure. The MACD DIF (7.1415) is below DEA (12.8216), and the MACD green bar is -11.3603, indicating bulls' momentum continues to weaken amid consolidation at highs with pullbacks. The suggested core trading range for LME aluminium is USD 3,150-3,300 per tonne.

Macro front: The US Fed's rate decision is about to be released, and the sell-off in US Treasuries has intensified further. On Tuesday, the 10-year Treasury yield rose 5.35bp at one point to 5.041 per cent, and the 30-year Treasury yield rose 5.1bp to 5.399 per cent, both hitting new highs since 2007. The 20-year Treasury yield rose 5.3bp to 5.441 per cent, the highest level since issuance resumed in 2020.

The CME FedWatch Tool shows traders see a more than 90 per cent probability of a 25bp rate hike by the Fed in September. China's real estate market has entered a stock era, with second-hand home transaction data released for the first time. From January to August, China's second-hand home transactions by signed floor area reached 549 million m², up 10.6 per cent YoY.

New home sales area was 499 million m², down 12.1 per cent. Second-hand home transactions have exceeded new home sales for multiple consecutive months. At end-August, the floor area of commodity residential housing pending sale fell 0.5 per cent YoY, the first decline since September 2021.

Fundamentals: Outside China, aluminium production resumptions continued to ramp up, and expectations of looser supply in the longer term persist. However, LME inventory last week was only 245,000 tonnes, at an extremely low historical level. Combined with surging oil prices pushing up costs and shipping disruptions in the Strait of Hormuz, geopolitical supply risk premiums have rebounded.

Domestically, during the "September peak season," various sectors generally recovered, and social inventory continued destocking. On the inventory side, the destocking trend of aluminium ingot social inventory continued this week. On Monday, aluminium ingot inventory in major domestic consumption areas stood at 776,000 tonnes, down 20,000 tonnes from last Thursday and down 26,000 tonnes W-o-W from last Monday.

Primary aluminium market: On Tuesday, SHFE aluminium futures fluctuated significantly. Low prices in early trading boosted market buying sentiment, but as futures prices rose, subsequent spot transactions weakened. On Tuesday, A00 aluminium ingot was mainly quoted at a premium of RMB 10-30 per tonne against the SHFE aluminium 2610 contract.

SHFE aluminium futures remained generally stable. In the central China market, buying sentiment among downstream processing enterprises was lower than the previous day, with a strong wait-and-see atmosphere and a preference for purchasing at low premiums. However, major suppliers held prices firm, and although quotes trended slightly lower, they remained in a relatively high premium range. Ultimately, actual transaction prices in the central China market were concentrated at a discount of RMB 40-80 per tonne against the SHFE aluminium 10 contract.

On September 15, SMM A00 aluminium was reported at RMB 24,140 per tonne, up RMB 60 per tonne from the previous trading day, at a premium of RMB 30 per tonne against the 2609 contract, up RMB 20 per tonne from the previous trading day, and at a premium of RMB 20 per tonne against the 2610 contract.

SMM central China closed at RMB 24,060 per tonne, up RMB 70 per tonne from the previous trading day, at a discount of RMB 50 per tonne against the 2609 contract, up RMB 30 per tonne from the previous trading day, and at a discount of RMB 60 per tonne against the 2610 contract. The Henan-Shanghai price spread was RMB -80 per tonne, narrowing by RMB 10 per tonne from the previous trading day.

South China market: On Tuesday, aluminium prices stopped falling and rebounded slightly, while the spot market remained in the doldrums. An aluminium enterprise in the southwest launched a tender for incremental aluminium ingot supply. Near-term arrivals were tight, but expectations for future arrivals rose. Additionally, after the pullback, absolute prices were at relatively low levels, leading to renewed divergence among suppliers—some continued to hold prices firm while others cut prices to cash in, resulting in somewhat looser spot supply.

Some downstream buyers showed willingness to rush to buy amid continuous price rise and continued to restock steadily. However, traders remained cautious, with limited willingness to enter the market and only taking orders as needed. Demand follow-through was insufficient, and transactions weakened marginally. Spot transaction prices were concentrated at a premium of RMB 190-230 per tonne against the SHFE aluminium 2609 contract.

Aluminium scrap: On Tuesday, SMM A00 aluminium prices closed at RMB 24,140 per tonne, up RMB 60 per tonne W-o-W from the previous trading day, while the aluminium scrap market remained generally stable. In terms of price differences, on September 15, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,509 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 1,288 per tonne.

On the supply side, the tight raw material supply situation remained unchanged, and the scarcity of compliant, invoiced aluminium scrap continued to rise, constraining the operations and purchasing of scrap utilisation enterprises. Against this backdrop, some aluminium scrap yards actively sold amid high aluminium prices while reducing purchases and stockpiling, leading to a phased release of market supply.

The aluminium scrap market is expected to continue consolidating on a strong note this week. With the September peak season underway, a substantive recovery in downstream end-user orders still needs to be observed. Active selling by scrap yards may persist in the near term, but the tightness in high-quality scrap with invoices is unlikely to see any material 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 activity.

Secondary aluminium alloy:Spot: On Tuesday, the ADC12 market overall held steady, with the SMM ADC12 price unchanged from the previous trading day at RMB 24,200 per tonne. Cost side, prices of raw materials such as aluminium scrap saw limited fluctuations overall, and cost support has yet to show any notable change.

Demand side, purchases remained primarily need-based, and peak season demand improvement has not yet generated significant growth. With no further drivers from costs or supply-demand, enterprises generally showed weak willingness to adjust prices in the short term, and the market was dominated by a wait-and-see stance and stable pricing.

Overall outlook: The 10-year and 30-year US Treasury yields hit their highest levels since 2007, and the 20-year Treasury yield reached its highest level since issuance resumed in 2020. The CME FedWatch Tool shows a more than 90 per cent probability of a 25 bp rate hike by the US Fed in September, and strong Fed rate hike expectations are weighing on the nonferrous metals sector.

China's real estate market has entered an era of existing-home stock, with new home sales area down 12.1 per cent YoY in January-August, and downstream construction-related aluminium processing demand recovery remains sluggish. However, fundamentals continue to destock in China, coupled with peak season demand recovery, providing relatively strong support below. Aluminium prices are expected to continue to consolidate at highs.

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.