Aluminium inventory buildup combined with forward capacity commissioning, geopolitical premium supports aluminium price with limited rebound space

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Futures: The most-traded SHFE aluminium 2609 contract closed at RMB 23,730 per tonne, up RMB 145 or 0.61 per cent from the previous day’s settlement price. It opened at RMB 23,620 per tonne during the day and fluctuated in a range of RMB 23,535–23,755 per tonne. The price traded above MA5 (23,616.00), MA10 (23,425.50), and MA30 (23,147.67), but below the MA60 (23,772.92) moving average.

The medium and long-term moving averages maintained a bearish alignment and continued to exert downward pressure. The consolidation-at-lows recovery pattern persisted, with the 60-day moving average above acting as a key resistance level. The MACD indicator’s DIF (43.2707) is above the DEA (-54.1006), with a green bar value of 194.7426. Bearish momentum continued to weaken, while bullish recovery momentum further strengthened.

The suggested core trading range for SHFE aluminium is RMB 23,300–24,000 per tonne. The LME aluminium three-month contract settled at USD 3,231 per tonne, up 0.12 per cent, opening at USD 3,221 per cent during the day and fluctuating between USD 3,221 per tonne and USD 3,231 per tonne. The price traded above MA5 (USD 3,204.50), MA10 (USD 3,189.15), and MA30 (USD 3,158.23), but below the MA60 (USD 3,361.74) moving average.

Medium and long-term moving averages formed a bearish alignment and gradually pressed lower. Overall, a consolidation-at-lows recovery pattern emerged, with the 60-day moving average above providing significant resistance. The MACD’s DIF (-16.0463) is above the DEA (-34.4392), with a green bar of 36.7858. Bearish momentum continued to fade, and the rebound from lows maintained its momentum. The suggested core trading range for LME aluminium is USD 3,150–3,300 per tonne.

Macro front: US President Trump stated that negotiations with Iran are currently underway. Trump said that regarding the negotiations with Iran, the first phase is the opening of the Strait of Hormuz, and the second phase is denuclearisation. The Strait of Hormuz may be reopened by August 4 at the latest. Trump also stated that the negotiations were held at Iran’s request, with support from Saudi Arabia, the UAE, Qatar, and several other countries.

Sources said that Iran has rejected the US proposal regarding the Strait of Hormuz, insisting that it will not fully reopen the strait until the war ends. Iran’s Supreme Leader’s military advisor, Rezaei Mohsen, said that Iran will never allow the US to open any non-Iranian shipping lanes in the Strait of Hormuz, and even if the US deploys warships on illegal routes in the strait, Iran will target them.

The US Fed’s No. 3 official, New York Fed President Williams, stated that the current monetary policy is “well positioned,” inflation is expected to pull back in H2 this year, and the Fed is in no rush to adjust interest rates. But if the economic trajectory deviates from expectations and inflation fails to pull back to the 2 per cent target as anticipated, the Fed will “absolutely need to take action.”

Fundamentals: Markets outside China, production resumptions and new capacity of aluminium outside China continue to ramp up as planned, and expectations for the global aluminium market shifting from tight to loose in the long term persist. Fluctuating expectations for US Fed interest rate hikes and hawkish views continue to cap the upside room for aluminium prices. However, the US-Iran conflict continues to simmer, disruptions to shipping in the Strait of Hormuz persist, and the market worries about disruptions to aluminium raw material imports and product exports in the region.

Regional geopolitical risk premiums remain, and supply uncertainty continues to provide some bottom support for aluminium prices in the short term. In the Chinese market, inventory side, as of Monday this week, China's aluminium social inventory built up by 5,000 tonnes W-o-W from last Thursday to 958,000 tonnes, but destocked by 21,000 tonnes from last Monday, indicating that destocking of aluminium ingots in China has stalled.

Primary aluminium market: In early trading, the centre of the SHFE aluminium 2608 contract shifted lower from the previous trading day. However, purchasing sentiment in the spot market did not improve significantly. The transaction centre in the market was between a discount of RMB 20 per tonne and parity against the SHFE aluminium 2608 contract, with some downstream bids clearly at a discount of RMB 20 per tonne.

Today, the shipment sentiment index in east China was 3.07, down 0.01 from the previous session; the purchase sentiment index was 2.93, up 0.06 from the previous session. After the market opened, SHFE aluminium futures saw a slight correction. In the central China market, traders had the intention to hold prices firm, but weak purchase willingness from downstream processing enterprises suppressed overall market transactions. Only hedging traders were willing to buy in large volumes at low discounts to widen the price spread for profit.

Market quotations edged up slightly, but the overall level remained low. Ultimately, the actual transaction price range in central China was around a discount of RMB 170-190 per tonne against the SHFE aluminium August contract. Today, the shipment sentiment index in central China was 3.20, unchanged from the previous session; the purchase sentiment index was 2.85, up 0.02 from the previous session. Today, futures tumbled, and spot aluminium in south China barely held steady. Among the three major consumption regions, only Foshan remained in a destocking trajectory.

The break below key levels unexpectedly led holders to hold back from selling and be reluctant to sell at low prices. However, the need for cash combined with bearish sentiment put dual pressure and some sellers still offered small discounts to sell, forming a drag. Mainstream quotations were at a discount of RMB -10 to 0 per tonne, with supply outflows increasing somewhat. Demand side, downstream buyers mainly absorbed steadily at lower prices and showed no intention to increase volumes on the decline.

In the trading sector, participants only took in low-priced cargoes at a steady pace to fulfil delivery obligations. Demand provided bottom support but lacked upward momentum. Momentum on both the supply and demand sides was weak, and intraday transactions were tepid. Spot transaction prices were concentrated at a premium of RMB 80-120 per tonne against the SHFE aluminium 2608 contract.

Aluminium scrap: Today, SMM A00 spot aluminium prices closed at RMB 23,500 per tonne, edging down RMB 130 per tonne from the previous trading day. Scrap aluminium prices in various regions generally followed the decline. In terms of price differences, on August 3, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,050 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 840 per tonne. During the off-season, aluminium scrap suppliers’ willingness to sell at low prices generally remained low, keeping aluminium scrap prices firm overall.

On the demand side, with the arrival of high-temperature holidays, operating rates at downstream cast aluminium alloy enterprises declined and orders shrank; secondary aluminium plate/sheet and strip enterprises had moderate operating rates, but overall raw material demand support weakened significantly compared to Q2.

In the short term, the tightness of compliant, invoiced cargoes on the supply side persisted, and suppliers’ insufficient willingness to sell at low prices provided bottom support for prices. On the import side, the lagging effects of the UAE's export ban and EU additional tariff policies will gradually emerge in the coming months, with port arrivals from June to August remaining low.

On the demand side, the sluggish downstream order situation is unlikely to improve in the short term, and scrap utilisation enterprises will likely continue purchasing as needed and maintaining low inventory, making it hard for the procurement atmosphere to show significant improvement.

Secondary aluminium alloy: Spot: Today, ADC12 market quotes consolidated on a subdued note, with SMM ADC12 down RMB 100 per tonne. The cost side still provided some support, but the pullback in futures and primary aluminium prices weighed on market sentiment; meanwhile, end-use demand was mediocre, with insufficient orders and weak transaction support. Enterprises mainly adjusted prices in line with the market, and their willingness to hold prices firm weakened. In the short term, ADC12 prices still face some downward pressure, but cost support remains, and prices are expected to mainly move sideways.

Comprehensive outlook: The macro front has improved recently; the standstill in expectations for US Fed interest rate increases has eased marginal constraints on the non-ferrous sector. China's proportion of liquid aluminium continued to rise, and the Middle East geopolitical risk premium persisted, jointly underpinning aluminium price performance, and market confidence has recovered somewhat in the short term.

However, with the continuous commissioning of ex-China aluminium capacity in the long term, weak traditional end-use demand in the domestic off-season, coupled with recurring expectations for US Fed interest rate hikes and persistent geopolitical uncertainties in the Middle East, aluminium prices are expected to consolidate on a strong note, but resistance overhead remains.

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.