Dramatic reversal in US-Iran conflict, ECB rate hike pressures metal prices

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Futures: SHFE aluminium closed at RMB 24,155 per tonne in the daytime session, up 0.62 per cent, remaining below all key moving averages (MA5≈24,072, MA10≈24,300, MA30≈24,450, MA60≈24,590), with clear downward pressure from short-term MAs and the bearish alignment still in place. The MACD indicator showed DIF=-145.65, DEA=-115.87; the death cross persisted, and the negative histogram narrowed to -61.57 (vs. -98.93 the prior day), suggesting weakening bearish momentum.

Trading volume shrank to 71,700 lots, indicating the rebound lacked volume support. The suggested core range for SHFE aluminium is 23,900–24,300. LME aluminium settled at USD 3,539 per tonne, up 0.41 per cent, with an intraday range of USD 3,527.5–USD 3,545.5.

The price moved back above the MA60 (USD 3,526.37) but remained capped by the MA5 (around USD 3,544), and the short-term moving average bearish alignment had yet to reverse. The MACD: DIF=-4.66, DEA=19.36; the death cross persisted, and the negative histogram narrowed to -48.05 (vs. -55.71 the prior day), suggesting a slight easing of bearish momentum. The suggested core range for LME aluminium is USD 3,500–USD 3,570.

Macro: The Middle East situation took a dramatic turn. On June 11, US President Trump posted on social media that, given that the results of consultations with Iran had been submitted to Iran’s supreme leadership and approved, he had cancelled the strike and bombing operations originally planned for that night against Iran.

Trump stated that until the final signing of this agreement, the US maritime blockade against Iran would remain in full effect. The ECB announced a 25bp rate hike, its first since September 2023, becoming the first major central bank globally to raise rates due to the Middle East conflict.

The ECB did not pre-commit to a specific rate path but noted that if energy prices remained elevated and triggered second-round effects, it could tighten policy further. The ECB also lowered its 2026 economic growth forecast for the eurozone to 0.8 per cent and raised its inflation expectations to 3 per cent.

Fundamentals: Supply side, according to SMM data, China’s aluminium output edged down this week, while the proportion of liquid aluminium increased slightly by 0.16ppt W-o-W. Downstream demand for liquid aluminium was moderate, with the key focus remaining on aluminium semis exports. On the inventory front, as of Thursday this week, domestic aluminium ingot social inventory stood at 1.312 million tonnes, down 48,000 tonnes from Monday and 63,000 tonnes from last Thursday—a notable acceleration in destocking.

However, due to substitution between aluminium ingot and billet, the destocking of domestic aluminium billet social inventory slowed this week. Demand side, the downstream processing sector was overall sluggish during the consumption off-season. While strong export demand in some segments provided a partial offset, weekly operating rate for aluminium plate/sheet and strip, aluminium foil, and aluminium wire and cable weakened, and the aluminium extrusion segment faced intensifying downward pressure. Overall, the weekly operating rate of downstream bellwether companies fell another 0.4ppt W-o-W this week.

Primary aluminium market: The SHFE aluminium 2606 contract fluctuated upward in early trading, with the overall price centre moving higher compared to the previous trading day. The sell-side sentiment improved yesterday, with sellers raising their quotes. However, higher aluminium prices dampened downstream purchasing sentiment. Mainstream spot transactions were concluded at discounts of RMB 90-120 per tonne against the SHFE July contract. The east China sell-side sentiment index was 2.89 yesterday, up 0.03 W-o-W; the purchasing sentiment index was 286, down 0.04 W-o-W.

Aluminium futures prices saw a slight correction. The sell-side sentiment in central China improved further yesterday from the previous two days, but downstream processing enterprises preferred to purchase at low premiums, while suppliers lacked the willingness to hold prices firm.

Market quotes trended lower throughout the session, gradually shifting from discounts of RMB 100-110 per tonne against the SHFE July contract before market open to discounts of RMB 120-140 per tonne against the SHFE July contract, with the mainstream trading range at discounts of RMB 120-140 per tonne against the SHFE July contract. The central China sell-side sentiment index was 2.9 yesterday, up 0.01 W-o-W; the purchasing sentiment index was 2.22, flat W-o-W.

Secondary aluminium raw materials: SMM A00 aluminium price rebounded RMB 190 per tonne to RMB 23,970 per tonne yesterday compared to the previous trading day, while the aluminium scrap market followed the decline slightly. On the price difference front, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan stood at RMB 2,598 per tonne on June 11, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 2,060 per tonne.

The continued narrowing of these price spreads reflects strong bottom support for aluminium scrap. Supply side, the "reverse invoicing" policy oversight continues to tighten, with the cancellation of tax rebates in certain provinces and stricter tax audits leading to higher costs for invoice-backed raw materials, causing production cuts and shutdowns to spread further among enterprises in Anhui, Jiangxi, and Hubei.

High compliance costs in the raw material collection process persist, and the availability of invoice-backed cargoes remains tight, making invoice scarcity a core support factor for aluminium scrap prices. Meanwhile, the persistent price spread inversion between Chinese and overseas markets limit the availability of low-priced, high-quality imported scrap, further weakening overseas supplementation.

Demand side, the off-season effect continues to deepen. The operating rate at downstream scrap utilization enterprises remains low, with end-user order follow-through sluggish. Enterprises are maintaining a strategy of purchasing as needed and keeping low inventory, resulting in a cautious procurement atmosphere.

Downstream die-casting enterprises continue to see sluggish orders, with purchases primarily based on rigid demand in small batches. There is insufficient willingness to rush to buy amid continuous price rise, and overall market trading activity remains low. End-use consumption is unlikely to see substantive improvement, and the demand side continues to cap the upside room for prices. Aluminium scrap prices are expected to remain range bound at high levels with a weak bias, but the downside room is limited. The tightness of invoice-backed compliant cargoes will persist, providing bottom support for aluminium scrap prices.

The lagged contraction effect of imported aluminium scrap has not yet fully played out, and port arrivals will remain low going forward. The renewed escalation of the US-Iran conflict is exacerbating the price spread inversion between Chinese and overseas markets, keeping overseas supplementation constrained.

Meanwhile, as the off-season deepens, concerns mount over the sustainability of orders for downstream scrap utilization enterprises. Enterprises maintain strategies of purchasing as needed and keeping low inventory levels, with the buying sentiment unlikely to improve significantly. The overall pattern reflects supply-demand weakness.

Secondary aluminium alloy: Spot market: Yesterday, mainstream enterprises in the ADC12 market generally raised their quoted prices by RMB 100 per tonne, with the price centre continuing to shift upward. SMM’s ADC12 quoted price rose to RMB 24,000 per tonne.

Raw material procurement and compliance operating costs remain high, significantly squeezing corporate profits and driving producers to raise prices and pass on cost pressures. Meanwhile, supply has tightened somewhat, finished product inventories at enterprises are on the low side, and spot cargo availability is relatively tight.

However, market demand remains weak, and downstream purchasing willingness has yet to show a clear recovery. Most enterprises reported stable orders, with transactions still mainly need-based. With limited demand support, the capacity to absorb the price increases in actual transactions continues to be tested. Overall, the current ADC12 market is characterized by “cost-driven price rises and demand-limited gains.” Near-term prices may continue to hold up well, but further upside room will depend on the pace of downstream demand recovery.

Aluminium market summary: Macro front, the US-Iran conflict took a dramatic turn, with Trump calling off the strike, but the maritime blockade persists. Yet, the market has become desensitized to repeated similar episodes, and geopolitical risk premiums are marginally diminishing. The ECB raised interest rates by 25 basis points, lowered its economic growth forecast, and raised its inflation expectations.

External liquidity tightening and demand concerns are weighing on metal prices. Fundamentals side, the overseas supply gap is expected to provide strong bottom support for aluminium prices, and expectations of rising energy costs are also providing a moderately bullish driver for aluminium prices.

On Thursday, the destocking pace of domestic aluminium ingot social inventory accelerated notably, effectively alleviating the earlier high inventory pressure. However, the pressure from high domestic inventories remains relatively pronounced, which is expected to limit upside room for domestic aluminium prices. Near-term domestic aluminium prices are expected to trade mainly in a consolidative range.

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.