Domestic and overseas aluminium diverge and consolidate to repair, Middle East tensions ease disrupting aluminium price risk premium

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Futures: The most-traded SHFE aluminium 2609 contract closed at RMB 23,745 per tonne rose by RMB 20 compared to yesterday's settlement price, a gain of 0.08 per cent, opened at RMB 23,800 per tonne during the session, and fluctuated within a range of 23,715 to RMB 23,840 per tonne. The price traded above MA5 (23,690.00), MA10 (23,489.00), MA30 (23,158.50), and near the MA60 (23,759.17).

The medium and long-term moving averages were overall in a bearish alignment, exerting continuous downward pressure. The structure of consolidating and repairing at lows continued, with the 60-day moving average above forming a key resistance level. The MACD DIF (69.24) was above the DEA (-28.4106), and the MACD red histogram value was 195.3090. Bearish momentum continued to weaken, while bullish repairing momentum remained strong.

The core trading range for SHFE aluminium was suggested to reference RMB 23,500-24,000 per tonne. The LME aluminium 3M contract closed at USD 3,211 per tonne fell by 0.20 per cent, opened at USD 3,215 per tonne during the session, and fluctuated within a range of USD 3,205.00 to USD 3,218 per tonne. The price traded above MA5 (3,208.70), MA10 (3,189.65), MA30 (3,160.98), and below the MA60 (3,355.46).

The medium and long-term moving averages were arranged in a bearish manner and gradually exerted downward pressure. An overall consolidating and repairing structure at lows emerged, with the 60-day moving average above forming a clear resistance. The MACD DIF (-14.0943) was above the DEA (-30.5426), and the MACD red histogram was 32.8965. Bearish momentum continued to weaken, and the decline pace slowed. The core trading range for LME aluminium was suggested to reference USD 3,150- USD 3,300 per tonne.

Macro front: The most obvious positive signal emerged in the negotiations to resume shipping in the Strait of Hormuz. Iran had abandoned its previous stance demanding full control over two-way shipping in the Strait of Hormuz. The Iranian government was considering allowing European countries to participate in mine-clearing operations in the Strait of Hormuz, which was one of the core issues where Iran had always refused to compromise in previous negotiations.

Foreign Ministry spokesperson Baghai stated that Iran was still negotiating with Oman over the Strait of Hormuz, with talks making ‘positive progress’ on technical and political levels. Philadelphia Fed President Paulson said he would keep an open mind on the direction of monetary policy, with whether core inflation could continue to pull back being the key basis for his judgment.

If underlying inflation remained high, the US Fed might need to further tighten monetary policy to ensure inflation returned to the 2 per cent target. The central bank will conduct a RMB 500 billion 3-month outright reverse repo operation on August 5. As RMB 300 billion of 3-month outright reverse repos matured in August, the central bank net injected RMB 200 billion through 3-month outright reverse repos, net injecting funds through 3-month outright reverse repos for two consecutive months.

Fundamentals: Markets outside China: Resumptions and new capacity additions at overseas aluminium smelters continued to ramp up as planned, with market expectations for the global aluminium market to shift from tightness to looseness in the long term persisting. The US-Iran negotiations saw new progress, improving expectations for strait passage and easing geopolitical premiums somewhat, though uncertainties remain. The US Fed remains open regarding near-term monetary policy direction, reducing the pressure on the nonferrous metals sector.

Domestically, the central bank conducted RMB 500 billion of 3-month outright reverse repo operations, with monetary policy remaining moderately accommodative, providing some support for funding liquidity. On the inventory front, aluminium ingot inventories in major consuming regions fell by 2,000 tonnes day-on-day yesterday, with only Gongyi seeing an inventory buildup.

Primary aluminium market: In early trading, the SHFE aluminium 2608 contract ran significantly higher than yesterday's centre, affecting downstream purchasing sentiment. The centre of aluminium prices moved up, and inventory destocking slowed. However, as it was the beginning of the month, some enterprises showed sentiment to hold prices firm. The main transaction centre for SHFE aluminium spot premiums today was between RMB 8-30 per tonne and RMB 08-10 per tonne.

The east China market selling sentiment index was 3.09 today, up 0.02 day-on-day; the purchasing sentiment index was 2.80, down 0.13 day-on-day. Aluminium futures rose again. Today, the trading atmosphere in the central China market remained sluggish, with downstream processing enterprises' purchase willingness staying at low levels, while traders tended to buy in large quantities at low discounts to capture price spreads, leading to heated buying sentiment among traders.

Ultimately, the actual transaction price range in central China centred around discounts of RMB 190-210 per tonne against the SHFE aluminium August contract, with a firming trend. Today, the central China market selling sentiment index was 3.20, unchanged day-on-day; the purchasing sentiment index was 2.91, up 0.06 day-on-day. Today, aluminium prices surged again, putting the spot market under pressure and weakening it.

On one hand, the sharp rise in absolute prices stimulated accelerated unilateral selling for liquidation; on the other hand, the basis remained relatively high compared to the previously large discounts, giving warrant holders ample room to sell and liquidate. Moreover, unfavourable factors such as longer storage times and smaller tonnage for warrants severely impacted circulation.

Suppliers shifted from attempting to hold prices firm to lowering their offers, with quotes mainly at discounts of -30 to 0. Downstream buyers were unable to chase high prices, leading to weakened purchasing demand. Traders only pushed for lower prices and bought at discounts on a need-to basis, rarely entering the market. Transactions were oversupplied.

Aluminium scrap: Today, the SMM A00 spot aluminium price closed at RMB 23,730 per tonne, up RMB 230 per tonne from the previous trading day. Scrap aluminium prices in most regions generally followed the rise, while some regions and varieties remained cautious and waited. Regarding the price difference between A00 aluminium and scrap: on August 4, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,160 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 950 per tonne.

Against the backdrop of the consumption off-season, aluminium scrap suppliers' willingness to sell at low prices was generally low, and aluminium scrap prices remained firm overall. Demand side, as the high-temperature holiday approached, downstream cast aluminium alloy enterprises saw their operating rates drop and orders shrink; secondary aluminium plate/sheet and strip enterprises had moderate operations, but overall raw material demand support significantly weakened compared to Q2. In the short term, supply side, the tight supply pattern of compliant and invoiced goods persisted, and suppliers' low willingness to sell provided bottom support for prices.

Import side, the lagging effects of the UAE export ban and EU tax hike policies will gradually emerge in the coming months, with port arrivals from June to August remaining low. Demand side, the downturn in downstream orders is difficult to reverse in the short term, scrap utilisation enterprises likely continue the strategy of purchasing as needed and maintaining low inventory, and the procurement atmosphere is unlikely to see significant improvement.

Secondary aluminium alloy:spot: Today, ADC12 market quotes showed an overall slight rebound, with the market generally rising by RMB 100 per tonne. Driven mainly by a rebound in aluminium prices and enhanced cost support. However, this round of price increases was more of a correction of previous declines; market demand improvement was not yet evident; some downstream enterprises gradually went on high-temperature holidays; orders showed weakness; and procurement remained primarily need-based.

Therefore, although current ADC12 prices have rebounded with cost support, weak demand still constrains the upside room for prices, and in the short term, the market continues a consolidation pattern where cost support and weak demand coexist.

Comprehensive outlook: Recently, the macro front has improved, with the marginal constraint of unchanged rate hike expectations on the nonferrous metals sector weakening; the proportion of liquid aluminium in China has continued to rise, jointly supporting aluminium prices. However, the continuous deployment of forward aluminium capacity outside China, weak end-use demand in China during the traditional off-season, and uncertainties in the Middle East geopolitical situation are expected to lead aluminium prices to consolidate on a strong note.

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.