Concerns over liquidity tightening ease marginally, aluminium prices are under pressure at high levels in the short term

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Futures: SHFE aluminium closed at RMB 24,010 per tonne, down 0.62 per cent, with the price breaking below MA5 (around 24,160) but holding slightly above MA10 (23,988.5); short-term moving average support faces a test, while medium-term MA30 (23,469.5) and MA60 (23,699.67) remain in bullish alignment.

MACD DIF=208.6, DEA=143.02; the golden cross remained intact, but the histogram narrowed to 131.17 (previous day 192.2), with bullish momentum weakening for a third consecutive day. Trading volume expanded slightly to 53,000 lots, and market divergence increased somewhat. The suggested core trading range for SHFE aluminium is 23,800-24,400.

LME aluminium closed at USD 3,235.5 per tonne, down 0.08 per cent; the price broke below MA5 (3,296.9) and MA10 (3,271.2) but remained above MA30 (3,200.3). Short-term moving averages have turned into resistance, while medium-term support remains intact. The MACD histogram narrowed to 20.22 (previous day 41.42), with bullish momentum continuing to weaken. The suggested core trading range for LME aluminium is 3,200-3,280.

Macro front: US July PPI was flat M-o-M, while Y-o-Y growth slowed to 4.7 per cent from 5.5 per cent in June; core PPI rose 0.2 per cent M-o-M, below the expected 0.3 per cent, and its Y-o-Y increase fell to 4.2 per cent. The data showed US inflation pressures continued to ease, and traders further lowered expectations for a US Fed interest rate hike in September; divisions within the US Fed over the next monetary policy path became more public.

Cleveland Fed President Hammack reiterated her hawkish stance, saying action is needed now and warning of financial stability risks from US Treasury leverage and AI bubbles. Richmond Fed President Barkin, by contrast, supported keeping interest rates unchanged, arguing that inflation mainly stemmed from temporary shocks, but warned that AI investment and supply chains could bring lasting price pressures.

Fundamentals: Supply side, China's weekly aluminium production was basically stable over the past week, and the proportion of liquid aluminium rose 0.19 percentage point M-o-M. Outside China, with production ramp-up at new projects and production resumptions continuing to advance, aluminium supply is expected to keep rising.

However, the global aluminium ingot destocking trend is unlikely to change in the short term. Demand side, downstream processing industries are in the traditional consumption off-season, with overall operating rates under pressure; aluminium billet processing fees have pulled back, weakening substitution demand for aluminium ingots. Inventory side, China's aluminium social inventory continued its destocking trend this week.

As of Thursday this week, China's aluminium ingot social inventory fell by 19,000 tonnes from Monday to 898,000 tonnes, and by 35,000 tonnes from the previous Thursday. Aluminium ingot inventory is expected to continue destocking in the short term, but the destocking pace is expected to slow in the second half of the month. Overseas supply side, UAE's EGA semi-annual results report disclosed the production resumption progress at the Al Taweelah aluminium smelter, which was shut down after an attack on March 28. Of the plant’s 1,262 pots, 18 per cent have been restarted. Production is expected to recover to pre-incident levels in Q1 2027. Production at alumina refineries fell significantly Y-o-Y in H1 2026, and capacity recovered to 50 per cent of pre-incident levels in early July.

Primary aluminium market: In early trading, the SHFE aluminium 2608 contract centre moved lower from yesterday, market purchasing sentiment improved further, and trading among traders was relatively active. Today, spot premiums for SHFE aluminium mainly traded between parity against the 08 contract and the 08 contracts plus RMB 10 per tonnes, while the market traded against the 09 contract at discounts of RMB 30 per tonnes to RMB 20 per tonne. In east China today, the shipment sentiment index was 3.18, up 0.01 D-o-D; the purchasing sentiment index was 3.30, up 0.04 D-o-D.

Aluminium futures pulled back somewhat. Today, purchase willingness among downstream processing enterprises in the central China market rebounded slightly, and overall market trading volume recovered. Large traders remained notably inclined to hold prices firm and hold back from selling, and quoted price differences between large and small traders were wide. In the end, actual transaction prices in the central China market centred on discounts of 110-150 yuan/ tonnes against the SHFE aluminium 09 contract.

In the central China market today, the shipment sentiment index was 3.06, down 0.03 D-o-D; the purchasing sentiment index was 2.95, down 0.02 D-o-D. Today the futures market turned sharply lower, and the weak spot market in south China remained unchanged. Inventory accumulated again after four months, which weighed somewhat on market outlook expectations, and bearish sentiment gradually emerged.

Against the backdrop of both absolute prices and the spot-futures spread weakening, holders briefly failed to hold prices firm and then broadly lowered prices and sold more to liquidate in a timely manner; mainstream quotes were at discounts of RMB 20 per tonnes to parity, and supply was as abundant as during yesterday’s sharp rally.

Demand side, downstream buyers gradually bought on dips from the sidelines, with limited enthusiasm; traders still bought less and sold more, purchasing only as needed, which created a notable drag. Both supply and demand were weak, and overall trading was lacklustre. Spot transaction prices were concentrated at premiums of 65-105 yuan/ tonnes against the SHFE aluminium 2608 contract.

Aluminium Scrap: Today, the SMM A00 spot aluminium price closed at RMB 24,120 per tonnes, down RMB 250 per tonnes from the previous trading day. China’s aluminium scrap market broadly followed the decline, with aluminium tense scrap prices down RMB 100 per tonnes, while bare bright aluminium wire, aluminium extrusion scrap free of paint, and similar materials fell RMB 200 per tonnes in tandem.

In terms of the price difference between A00 aluminium and aluminium scrap, on August 13 the Foshan price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint was approximately RMB 2,310 per tonnes, and the price difference between A00 aluminium and shredded aluminium tense scrap was approximately RMB 1,210 per tonnes, both widening again W-o-W.

With primary aluminium prices continuing to rise, aluminium scrap price fluctuations were relatively limited, and the price transmission mechanism was obstructed, mainly constrained by two factors: first, downstream secondary aluminium alloy demand weakened marginally; amid high-temperature holidays and the traditional consumption off-season, operating rates at cast aluminium alloy enterprises continued to decline, and order volumes shrank; second, high inventories of wrought aluminium alloy scrap materials such as doors and windows in Henan and other regions weakened the elasticity of aluminium scrap price increases.

Additionally, supply-side constraints from the “reverse invoicing” policy persist, and the scarcity of compliant, invoice-backed aluminium scrap provides bottom support for aluminium scrap prices. The import window has recently improved from earlier levels, with traders’ inquiries and purchasing interest picking up; arrivals are expected to land gradually from mid-to-late August, likely improving import supply in the near term.

The current high-temperature holiday period has not yet ended, and downstream cast aluminium alloy enterprises are maintaining low operating rates. Order recovery still needs time. Scrap utilisation enterprises are likely to continue purchasing as needed and keeping inventories low, while a concentrated restocking phase still has to wait.

Notably, the price difference between A00 aluminium and shredded aluminium tense scrap has widened to RMB 1,210 per tonnes, and aluminium scrap’s economic advantage over primary aluminium has recovered somewhat. The aluminium scrap market is expected to continue to move sideways in a high and narrow range in the near term, with weak end-use demand remaining the core factor suppressing prices.

Secondary aluminium alloy: spot: Today, aluminium alloy market quotes were broadly lower, with the SMM ADC12 price lowered by RMB 200 per tonne. The pullback in futures further pressured spot market sentiment, and enterprises generally followed by lowering their quotes. Downstream demand remains in the off-season, with some enterprises still on high-temperature holidays or operating at reduced loads; end-use orders and procurement demand are weak, and the spot market lacks sustained upward momentum.

However, the cost side still provides some support, as aluminium scrap prices remain high overall, leaving enterprises with limited room for further price cuts. The market lacks demand-driven upside, while the downside is constrained by costs. ADC12 prices are expected to continue to move sideways in a range in the near term.

Overall outlook: On the macro front, US July PPI and core PPI both declined Y-o-Y, coming in below both expectations and previous readings. Inflation pressure eased further, while market expectations for a US Fed interest rate hike in September were lowered and concerns about liquidity tightening eased marginally.

On the fundamentals side, aluminium ingot inventory continues to destock, but the destocking pace is expected to slow in the second half of the month; production resumptions at Middle East aluminium smelters have quickened compared with earlier market expectations, and the supply tightness premium priced in earlier now faces pullback pressure. Although macro recovery and continued destocking in the first half of August supported aluminium prices, market sentiment has turned, and aluminium prices are expected to remain under pressure at high levels in the near term, with upside room capped to some extent by production resumption expectations.

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.