China inventory continued to decline this week, aluminium prices showed LME outperforms SHFE in the short term

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Futures: The SHFE aluminium 2607 contract closed at RMB 24,265 per tonne, down 0.31 per cent. The price fell below the key moving average MA5 (24,375), trading below MA10 (24,426), MA30 (24,691.67), and MA60 (24,704.92). The moving averages were in a bearish alignment, indicating a clearly weak short-term pattern. The MACD indicator showed DIF = -109.29, DEA = -82.83, with the death cross continuing and the negative histogram bar at -52.93, suggesting that bearish momentum remained dominant.

Trading volume shrank to 57,300 lots, indicating eased selling pressure but insufficient buying interest. Open interest stood at 298,300 lots, up slightly by 1,124 lots, with low-level capital positioning continuing. The suggested core trading range for SHFE aluminium is 24,000–RMB 24,800 per tonne. The LME aluminium 3M contract closed at USD 3,672 per tonne, down 0.05 per cent. The price traded above MA5 (3,665.80), MA10 (3,639.80), MA30 (3,585.40), and MA60 (3,499.22).

The short-, medium-, and long-term moving averages were in a bullish alignment, with a moderately strong medium-term trend. The MACD indicator showed DIF = 43, DEA = 40.18, with the golden cross continuing and the histogram bar remaining in positive territory (5.65), indicating that upward momentum persisted. The suggested core trading range for LME aluminium is USD 3,550–3,700 per tonne.

Macro Front: China's first national-level urban renewal development plan was released. The State Council issued the Urban Renewal 15th Five-Year Plan, specifying key targets for the 15th Five-Year Plan period, including the renovation of 500,000 units/rooms of dilapidated urban housing, the launch of renovation projects for 115,000 old urban residential communities, the redevelopment of 4,000 urban villages, and the renovation of 365,000 km of urban underground pipeline networks.

The plan outlined key tasks in six areas, including fostering new momentum for urban development, and proposed policy measures in seven areas, including improving the implementation mechanism for urban renewal. New York Fed President Williams stated that the US Fed's current monetary policy was in an appropriate position given the economic outlook. He expected inflation to remain elevated in the near term but anticipated that price pressures would ease later this year.

Williams noted that if inflation remained persistently high, rate hikes might be necessary, but such a scenario had not yet materialised. US Treasury Secretary Bessent posted on social media, warning Oman against facilitating the collection of transit fees in the Strait of Hormuz, or it would face sanctions. Bessent said the US government would not tolerate any attempt to forcibly impose transit fees in the Strait of Hormuz.

Fundamentals: Supply disruptions in the Middle East persisted. LME inventory continued to decline, with LME inventory at 338,000 tonnes as of Wednesday, down approximately 1,500 tonnes W-o-W. LME aluminium Cash-3M premiums stood at USD 74.42 per tonne, up approximately USD 19.86 per tonne W-o-W, maintaining a high premium structure. Japan's Q3 spot premiums rose, and the rigid supply gap outside China continued to provide sustained support for LME aluminium.

China side, the overall PMI of China's aluminium processing industry registered 50.8 per cent in May. Although barely remaining above the 50 mark, it pulled back significantly by 3.1 percentage points from April, with industry prosperity sliding from the edge of expansion territory toward a critical state, and structural divergence further intensifying. On Monday this week, SMM aluminium social inventory was approximately 1.386 million tonnes, destocking 15,000 tonnes from last Thursday. Destocking continued this week, but inventory remained at a historically high level for the same period.

Primary aluminium market: Last Friday, SHFE aluminium 2606 contract fluctuated downward in the early session, with the overall price centre moving significantly lower from the previous trading day. Affected by the decline in aluminium prices, some sellers' selling sentiment weakened, while downstream enterprises' buying sentiment rose M-o-M, pushing up buyer price acceptance.

The mainstream spot cargo quotations in the market ranged from SMMA00 average price to RMB +10 per tonne. East China market shipment sentiment index was 2.97 today, down 0.06 M-o-M; procurement sentiment index was 3.36, up 0.1 M-o-M. Last Friday, futures aluminium declined, and central China market downstream processing enterprises' procurement sentiment rebounded slightly, but purchases remained primarily on-demand in small volumes.

Suppliers tended to ship in large volumes when the spot-futures price spread was relatively small, and market shipment sentiment improved significantly, with the overall transaction atmosphere becoming more active compared to the previous two days. The actual transaction price range in the central China market ultimately centred around the central China price with a premium of RMB 10 to a discount of RMB 10. Last Friday, central China market shipment sentiment index was 2.86, up 0.03 M-o-M; procurement sentiment index was 2.26, up 0.01 M-o-M.

Aluminium scrap: Last Friday, SMM A00 price rose RMB 70 per tonne from the previous trading day, and the aluminium scrap market remained generally stable with slight increases. The aluminium scrap market was expected to continue holding up well at high levels this week, with the mainstream price range for shredded aluminium tense scrap (priced based on aluminium content) maintained at RMB 20,300-20,900 per tonne (tax-exclusive). Constraints from the "reverse invoicing" policy persisted, and the tight supply of compliant invoiced goods was unlikely to reverse in the short term; the lagged contraction effect of imported aluminium scrap had not been fully released, and subsequent port arrivals would continue to run at low levels.

However, with the off-season approaching, the sustainability of subsequent orders for scrap utilisation enterprises was concerning, and end-use demand growth remained limited. Continued attention should be paid to policy compliance progress, the outcome of US-Iran war negotiations, and the port arrival situation of imported sources.

Secondary aluminium alloy: Last Friday, the ADC12 market operated generally stable with slight rise overall. Driven by cost pressure, some enterprises raised quotations slightly by RMB 100 per tonne, but most manufacturers remained steady and waited on the sidelines.

Currently, invoiced aluminium scrap resources remained persistently tight, leading to elevated procurement costs, with some manufacturers concerned about subsequent production reduction risk. However, downstream demand performance remained mediocre, with limited release of end-user orders, constraining price increases. Overall, aluminium alloy prices are expected to move sideways in the short term. Cost and supply dual support limits downside room, while persistently weak demand also caps rebound upside. If the tightness in compliant aluminium scrap raw materials continues to intensify, the industry operating rate declines further, and supply contraction gradually transmits to the spot market, prices are expected to hold up well.

Overall Outlook: If the US-Iran ceasefire agreement materialises, it would significantly ease Middle East supply concerns, but recurring military frictions leave peace prospects uncertain, and geopolitical premiums tend to converge in the short term but have not fully dissipated. Rigid supply gaps outside China support a strong LME aluminium pattern, but production resumptions at US and Icelandic smelters are expected to continue; amid high prices, new aluminium projects in Indonesia are accelerating, with some projects expected to gradually start energising and commissioning; India's Balco expansion capacity is expected to continue to ramp up production.

In the short term, ex-China aluminium production is expected to maintain negative YoY growth, but as production resumptions and new project ramp-ups continue, daily average aluminium production is expected to maintain positive growth. China's inventory continued to decline this week but at a weaker pace, SHFE aluminium upside elasticity remained limited, and the domestic-overseas divergence pattern persists in the short term.

Key areas to watch going forward include whether China's inventory drawdown accelerates, whether the US-Iran agreement can be formally signed, further clarity on the US Fed's rate path, and whether China is further regulating aluminium capacity operations. Overall, aluminium prices are expected to continue the pattern of LME outperforming SHFE while moving sideways in the short term.

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.