Domestic and Ex-China aluminium prices consolidate at lows and recover; Destocking tailwinds offset Ex-China capacity headwinds

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Futures: The most-traded SHFE aluminium contract opened at RMB 22,850 per tonne in the night session on July 6, reached a highest price of RMB 22,950 per tonne, a lowest price of RMB 22,790 per tonne, and finally closed at RMB 22,900 per tonne, up 0.07 per cent from the previous close.

During this period, the price rebounded from the recent low of 22,250, repairing with a small bullish candlestick, and stood above MA5 (22,823.05), but still traded below all the medium and long-term moving averages, including MA10 (22,769.40), MA20 (22,932.81), MA40 (23,321.76), and MA60 (23,593.64).

All medium and long-term moving averages maintained a bearish downward arrangement. The previous low of 22,250 provided solid support. Short-term downward momentum continued to slow down. Trading volume during this period was 42,900 lots, significantly shrinking from the previous, and open interest stood at 250,000 lots, down 3,475 lots from the previous.

The futures displayed a feature of bearish position reduction. Technically, on the 4-hour MACD indicator, the DIFF (-281.88) was above the DEA (-348.76), with the golden cross structure persisting. The red histogram STICK value was 133.76, with bullish momentum continuing to expand. However, the overall medium and long-term bearish pattern had not changed yet.

On July 6, LME aluminium opened at USD 3,094 per tonne, reached a highest price of USD 3,124.5 per tonne, a lowest price of USD 3,094 per tonne, and finally closed at USD 3,113 per tonne, up 0.74 per cent from the previous close. During this trading day, the price staged a mild rebound from the recent low of 3,040, repairing with a bullish candlestick, and stood above MA5 (3,105.200), but still traded below all the medium and long-term moving averages, including MA10 (3,148.19), MA20 (3,254.69), MA40 (3,364.76), and MA60 (3,391.32).

All moving averages across different periods overall maintained a bearish downward arrangement. The previous low of 3,040.0 provided solid support. Short-term downward momentum continued to slow down. Trading volume for the day was 15,144 lots, shrinking by 5,821 lots from the previous, and open interest was 600,000 lots, down 936 lots from the previous.

The market displayed a feature of bearish position reduction. Technically, on the daily MACD indicator, the DIFF (-125.43) was below the DEA (-109.32), maintaining a death cross structure. The green histogram STICK value was -32.21, with bearish momentum further contracting from the prior period, but the bear-dominated pattern remained unchanged.

Macro front: On Monday, the US Institute for Supply Management (ISM) reported that the ISM Services PMI for June fell to 54.0 from 54.5 in May, slightly below market expectations of 54.2, remaining above the 50 mark continuously, signalling that the services sector remained in expansion territory but the pace of expansion slowed down.

Fed Governor Waller stated that the US labour market had stabilised while inflation was reaccelerating, and that current inflation risks now exceeded employment risks, a complete reversal compared to policy considerations a year ago. He noted that last year, in response to a weak labour market, interest rate cuts were supported, and now the policy focus should shift back to containing inflation.

According to the CME "FedWatch Tool": the probability of the US Fed keeping interest rates unchanged in July is 74.3 per cent, while the probability of a cumulative 25-basis-point rate hike is 25.7 per cent. The probability of the Fed keeping rates unchanged through September is 42.9 per cent, with a 46.2 per cent chance of a cumulative 25-bp hike and a 10.8 per cent chance of a cumulative 50-bp hike.

Fundamentals: According to an SMM roundup, total planned aluminium capacity outside China for 2026 and beyond reached 20.72 million tonnes. Of this, around 2.3 million tonnes of aluminium capacity outside China is scheduled to come onstream in 2026, with approximately 700,000 tonnes already commissioned and the remaining 1.6 million tonnes expected to be brought online in H2 2026.

In 2027, 3.555 million tonnes of new capacity is planned to be commissioned, of which Indonesia accounts for around 67.5 per cent. Cumulative planned new capacity from 2026 to 2027 totals about 5.855 million tonnes, representing 28.3 per cent of the total planned capacity for 2026 and beyond. On the inventory front, aluminium ingot inventory in major consuming regions fell by 0.85 W-o-W on Monday, with destocking mainly taking place in Guangdong and Wuxi.

Primary aluminium market: Early in the trading session, the trading centre of the SHFE aluminium 2606 contract was higher than the same period the previous trading day. Driven by higher aluminium prices, market selling sentiment strengthened somewhat W-o-W yesterday, while buying sentiment remained relatively weak, with limited price acceptance among some downstream players. Spot supply was ample, and mainstream transactions were done at parity to a premium of RMB 10 per tonne against the SHFE aluminium 07 contract.

In east China yesterday, the selling sentiment index stood at 3.00, up 0.08 W-o-W, while the buying sentiment index was 2.79, flat W-o-W. Futures aluminium rebounded, and with the day being Monday, spot market activity in central China was subdued. Weak end-use demand coupled with strong bearish sentiment among downstream processing enterprises led to a weakening in purchase sentiment, while suppliers showed little willingness to hold prices firm.

Eventually, actual transaction prices in central China ranged from a discount of RMB 60 to RMB 80 per tonne against the SHFE aluminium 07 contract, with a continued downward trend. In central China yesterday, the selling sentiment index was 2.90, up 0.01 W-o-W, and the buying sentiment index was 2.11, down 0.01 W-o-W.

Aluminium scrap: Yesterday, SMM A00 spot aluminium closed at RMB 22,840 per tonne, up RMB 80 per tonne from the previous trading day, while prices in the aluminium scrap market diverged significantly. Regarding price differences between A00 aluminium and aluminium scrap, as of July 6, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan stood at RMB 1,976 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 662 per tonne.

Notably, under the dual impact of rapidly declining aluminium prices and tight invoice supply, the price differences for aluminium tense scrap narrowed sharply. Some cast aluminium alloy enterprises have already begun using A00 aluminium ingots to replace aluminium scrap as raw material for production.

Import side, apart from port arrivals running at low levels during June-August due to a 1-3 month shipping lag factor, expectations of tightening high-quality scrap supply overseas have significantly strengthened, as the UAE imposed a temporary 4-month ban on aluminium scrap exports starting June and the EU plans to levy a 15 per cent tariff from September onward; the import supply chain will suffer substantial damage.

The aluminium scrap market is expected to continue consolidating on a subdued note, but downside room for prices is limited, with the mainstream range of shredded aluminium tense scrap priced based on aluminium content seen at RMB 19,200-19,800 per tonne (excluding tax).

Supply side, the reverse invoicing policy constraint is hard to reverse in the short term, and the tight availability of compliant invoiced cargo will persist; import side, the lagged suppressing effect of multiple bearish factors on actual port arrivals will gradually emerge in the coming months, further weakening the supplementation from imported aluminium scrap.

Demand side, as the off-season deepens, downstream operating rates remain low, and end-use orders are unlikely to see meaningful improvement; scrap utilization enterprises are likely to continue purchasing as needed and maintaining low inventory strategies. The price difference between A00 aluminium and aluminium scrap has narrowed to historical lows, significantly eroding the cost advantage of aluminium scrap over primary aluminium; if aluminium prices decline further, the substitution effect will accelerate.

Secondary aluminium alloy: Spot: Yesterday, the SMM ADC12 price remained stable at RMB 24,000 per tonne from the previous trading day. Driven by continued rebounds in spot aluminium prices and aluminium alloy futures, some enterprises raised their quotes by RMB 50-100 per tonne, strengthening cost support.

However, downstream demand still showed no obvious improvement, and transactions remained sluggish, prompting some enterprises to hold prices steady and watch. Amid high costs and weak demand, the market mostly adjusts prices cautiously; ADC12 prices are expected to continue consolidating sideways in the short term, and further upside awaits support from end-use demand.

Aluminium market summary: Macro front, US June nonfarm payrolls came in significantly below expectations, pushing back market expectations for a Fed rate hike; a weaker US dollar provided valuation support for nonferrous metals. The US and Iran restarted nuclear talks, and geopolitical safe-haven premiums continued to narrow, to some extent capping commodity upside; meanwhile, expectations of new aluminium capacity commissioning outside China present a medium- and long-term bearish supply factor.

Domestically, positives stood out, with the proportion of liquid aluminium continuing to rise; aluminium ingot warehouse withdrawals hit a four-year high in the past week, and the pace of destocking accelerated significantly, providing support for the bottom of SHFE aluminium.

Amid bullish and bearish factors, overseas, the US dollar bullish factor and supply/geopolitical bearish factors offset each other; after earlier overshooting, LME aluminium's downward momentum has slowed, and in the short term, it mainly consolidates at lows to repair. Domestically, supported by rapid destocking, the probability of SHFE aluminium performing weaker than LME aluminium is low; SHFE and LME may diverge slightly, and a one-sided weak trend is unlikely to persist.

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.