Dispute over Strait Management Right continues; Short-term bearish factors dominate aluminium price

Stock image for referential purposes only

SHFE aluminium settled at RMB 22,515 per tonne, plunging 2.19 per cent, with an intraday fluctuation range of 22,455–22,990. The price was well below all key moving averages (MA5=22,985, MA10≈23,622, MA30=24,085.5, MA60=24,460.67), with the moving average system in a bearish alignment and accelerating its divergence, intensifying the weak pattern.

The MACD showed DIF=-420.88, DEA=-284.31, a death cross downward, and the negative histogram bar expanded to -273.16, indicating persistently strengthening bearish momentum that reached a new low. Trading volume surged to 182,000 lots, with selling pressure increasing significantly. The suggested reference trading range for SHFE aluminium is 22,400–22,800. LME aluminium settled at USD 3,100.5 per tonne, edging up 0.06 per cent, with an intraday fluctuation of USD 3,096–USD 3,103.5.

The price was well below all key moving averages (MA5=3,139.5, MA10=3,253.25, MA30=3,488.05, MA60=3,520.13), with the moving average system in a bearish alignment, and the medium-term trend clearly weakening. The MACD showed DIF=-120.40, DEA=-84.37, a death cross downward, and the negative histogram bar expanded to -72.07, indicating persistently strengthening bearish momentum. The suggested reference trading range for LME aluminium is 3,080–3,130.

Macro front: The Oman-Iran joint working group held its first meeting on the Strait of Hormuz, exchanging views on the future management of the strait and related topics. Omani Foreign Minister Badr stated that Oman does not support imposing transit fees on passing vessels, but he did not rule out the possibility of discussing maritime service-related mechanisms.

Iranian Deputy Foreign Minister Gharibabadi emphasised that all ships must pass through the Strait of Hormuz via the "Iran route," otherwise Iran would take measures against those vessels. Kevin Hassett, Director of the US National Economic Council, said that based on all signs seen so far, Thursday's nonfarm payrolls report is expected to show "another strong number." The surge in US AI productivity has a disinflationary effect, so the case for a rate hike is currently insufficient.

Fundamentals: Supply side, according to SMM data, China's aluminium production rebounded W-o-W this week, mainly driven by the ramp-up of newly commissioned capacity and production resumptions of idle capacity. Last week, the proportion of liquid aluminium rose by 0.2 percentage points W-o-W, and casting ingot volume further declined. Outside China, earlier high prices stimulated accelerated commissioning of new projects.

As new projects are energised and ramp up production, operating aluminium capacity outside China is expected to further rebound W-o-W. Inventory side, aluminium inventory continued its smooth destocking trend this week. As of Monday, China's aluminium ingot social inventory fell by 40,000 tonnes from last Thursday and by 82,000 tonnes from last Monday.

Weakening aluminium prices led to a pickup in downstream buying sentiment, driving the destocking of aluminium ingot. On the export front, the SHFE/LME price ratio recovered rapidly last week, sharply narrowing the profit margin that had driven massive aluminium semis exports. New orders in some segments have already declined, and with orders on hand gradually being fulfilled, if export margins cannot be restored, there is a risk of subsequent reduction in aluminium semis exports.

Primary aluminium market: In early trading, the SHFE aluminium 2606 contract centre was higher than the same period on the previous trading day. As aluminium prices rose, overall purchasing sentiment in the market weakened yesterday.

Some warrant cargoes flowed into the market, leaving overall supply relatively ample. Mainstream transactions were at a discount of RMB 10~0 per tonne against the SHFE 2407 contract. Yesterday, the selling sentiment index in east China was 3.18, up 0.03 from the previous day; the buying sentiment index was 2.86, down 0.14. Yesterday, SHFE aluminium futures saw a slight correction, with the central China market trading mostly sluggish.

Downstream processing enterprises showed weak buying sentiment, and as traders recently sold large volumes of low-priced warrants, market supply was abundant, prompting suppliers to sell at collapsing prices with poor willingness to hold prices firm. Eventually, actual transaction prices in the central China market centred around a discount of RMB 20-50 per tonne against the SHFE 2407 contract, exhibiting a weakening trend. Yesterday, the selling sentiment index in central China was 2.91, up 0.01 from the previous day; the buying sentiment index was 2.13, down 0.01.

Secondary aluminium raw materials: Yesterday, the SMM A00 spot aluminium price closed at RMB 22,940 per tonne, edging up RMB 60 per tonne from the previous trading day, and the aluminium scrap market generally followed the increase.

Over the weekend, regions such as Jiangxi, Anhui, and Hubei adjusted according to the futures movement, first raising prices for aluminium tense scrap by RMB 100-200 per tonne. Regarding the price difference between scrap and primary aluminium, on June 26, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 1,893 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 912 per tonne.

The price decline in aluminium tense scrap was smaller than that in wrought aluminium alloy scrap. The supply side remained tight, the regulation of the reverse invoicing policy tightened, and production cuts and shutdowns among small and medium scrap utilisation enterprises in Anhui, Jiangxi, Hubei and other regions spread, increasing the scarcity of compliantly invoiced aluminium scrap.

On the import side, due to a shipping lag of 1 to 3 months, port arrivals of aluminium scrap are expected to remain low from June to August. In addition, the UAE’s temporary ban on aluminium scrap exports for four months starting June 3 further intensified expectations of tight supply for high-quality scrap in Asia.

This week, the aluminium scrap market is expected to remain in the doldrums at high levels, but the downside room is limited. The mainstream price range for shredded aluminium tense scrap (priced based on aluminium content) is expected to trade at RMB 19,300–19,900 per tonne (excluding tax). Constraints from the reverse invoicing policy and the delayed contraction of imported scrap continue to provide bottom support, but weak off-season demand and the low operating rate of downstream enterprises cap the upside room. Future attention should be paid to the pace of policy compliance, the progress of US-Iran peace talks and Hormuz maritime passage, the pace of overseas scrap port arrivals, and changes in downstream operating rates in China.

Secondary aluminium alloy: Spot market: Yesterday, ADC12 market prices were generally stable with slight rise. SMM ADC12 prices increased by RMB 100 per tonne from the previous day to RMB 23,950 per tonne, with the market centre edging higher. The core driver behind the price rise remained on the cost side.

Aluminium scrap prices stayed high, while tight supply of compliant raw materials and cost pressure from tax invoices persisted, keeping production costs elevated for enterprises. Although downstream demand was mediocre with limited new orders, and downstream procurement remained mainly needs-based restocking, enterprises' willingness to hold prices firm was relatively unified amid strong cost support.

Some enterprises, having already adjusted prices earlier, opted to hold steady and observe yesterday, but overall bullish sentiment still dominated the market. In the short term, without a marked improvement in demand, further sharp rises in ADC12 prices are constrained in momentum; however, cost support remains strong, and prices are expected to consolidate but hold up well.

Aluminium market summary: The dispute over the governance of the Strait of Hormuz persisted, and the resumption of navigation through the strait remained uncertain. The hawkish shift by the US Fed boosted the US dollar index, weighing on non-ferrous metal prices. Under macro headwinds, aluminium prices fell in and outside China. In the short term, bearish factors dominated, and aluminium prices are expected to remain in the doldrums.

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.