Ex-China premium collapse bets on accelerated China destocking; aluminium price under short-term pressure and fluctuation

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Futures: SHFE aluminium closed at RMB 23,980 per tonne ahead of the holiday, with the price far below the MA5 (24,005), MA30 (24,354.17), and MA60 (24,535.42). The moving averages were in a bearish alignment and diverging at an accelerating pace, indicating a notably weak pattern. The MACD showed DIF at -170.75 and DEA at -144.14, with a death cross pointing downward and the negative bar expanding to -53.21, as bearish momentum continued to strengthen. Trading volume remained low at 120,500 lots, reflecting subdued market participation. The suggested core trading range for SHFE aluminium is RMB 23,700–24,200 per tonne.

LME aluminium closed at USD 3,396.5 per tonne, edging down 0.03 per cent, with intraday fluctuations of USD 3,392.5-3,403.5 per tonne. The price was far below all key moving averages (MA5 at 3,400.6, MA10 at 3,448, MA30 at 3,577.2, MA60 at 3,541.28), with the system in a bearish alignment and the medium-term trend weakening notably. The MACD showed DIF at -53.13 and DEA at -27.31, with a death cross pointing downward and the negative bar expanding to -51.65, as bearish momentum continued to strengthen. The suggested core trading range for LME aluminium is USD 3,380-3,420 per tonne.

Macro front: US-Iran negotiations continued to advance. Iran indicated that a draft exemption for oil sanctions had been largely finalised, and US Vice President Vance also stated that significant progress had been made. However, Iran still said the Strait of Hormuz had not been reopened, while Trump threatened to take military action again if talks broke down. Uncertainty in the Middle East situation remained.

Fundamentals: Against the backdrop of high aluminium prices, new capacity outside China was commissioned ahead of schedule, and the LME aluminium Cash-3M premium narrowed significantly — from a historical high of USD 104.6 per tonne on June 1 to USD -1.5 per tonne on June 17, shifting from backwardation to a contango structure. In China, domestic fundamentals showed positive signals this week. On the inventory front, domestic social inventory of aluminium ingots stood at 1.242 million tonnes on Monday this week, down 13,000 tonnes from last Thursday, reinforcing the ongoing destocking trend.

Primary aluminium market: During the morning session, the SHFE aluminium 2606 contract fluctuated, with its trading centre lower than the same time the previous day. Affected by falling aluminium prices and pre-holiday stockpiling, buying sentiment among buyers remained relatively active last Thursday. Strong destocking performance pushed sellers' offer prices and transaction prices continuously higher. Mainstream spot transaction prices were at a discount of RMB 50-60 per tonne against the SHFE July aluminium contract.

Mainstream spot transaction prices were at a discount of RMB 60-80 per tonne against the SHFE July aluminium contract. Last Thursday in the East China market, the shipment sentiment index was 2.91, flat M-o-M; the purchase sentiment index was 3.20, up 0.14 M-o-M. Last Thursday, the final trading day before the Dragon Boat Festival, downstream processing enterprises in the Central China market showed strong purchasing interest, leading to relatively active overall transactions, though actual transaction prices remained weak. Traders holding cargo are inclined to sell aggressively before the holiday to avoid price fluctuation risks during the holiday.

Ultimately, transaction prices in the central China market were at a discount of RMB 70-100 per tonne against the SHFE aluminium July contract. Last Thursday, the selling sentiment index in the central China market was 2.93, up 0.01 W-o-W; the purchasing sentiment index was 2.23, up 0.02 WoW.

Aluminium scrap: Last Thursday, the SMM A00 price rose RMB 10 per tonne from the previous trading day to RMB 23,870 per tonne, while the aluminium scrap market remained stable overall. On the price difference front, on June 18, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was recorded at RMB 2,347 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 1,696 per tonne, narrowing by RMB 251 per tonne and RMB 364 per tonne, respectively, WoW. Corporate tax costs increased by more than 2 per cent Y-o-Y.

The continuous narrowing of the price spread between A00 aluminium and aluminium scrap reflects relatively firm bottom support for aluminium scrap.

Supply side, tightening regulatory oversight over the "reverse invoicing" policy, the cancellation of tax rebates in some provinces, and intensified tax inspections have driven up the cost of invoice-carrying raw materials. The persistent price spread inversion between Chinese and overseas markets has kept low-priced, high-quality imported supply scarce, further weakening its supplementation to the domestic market. Demand side, the off-season effect is deepening, with downstream scrap utilisation enterprises operating at low rates, weak follow-through on end-user orders, and enterprises maintaining cautious purchasing-as-needed and low-inventory strategies.

As the Dragon Boat Festival holiday approaches, downstream scrap utilisation enterprises show limited purchasing interest, with no visible holiday stockpiling. Some yards have shut down for 1-2 days due to insufficient shipment orders. The aluminium scrap market is expected to continue its high-level, weak fluctuation pattern. The tight supply of compliant invoice-carrying cargo, combined with expanding production cuts and suspensions, reinforces expectations of shrinking aluminium scrap supply, providing bottom support for prices.

Demand side, downstream secondary cast aluminium alloy orders remain sluggish, and support from wrought aluminium alloy purchases has also weakened, making it difficult for end-use consumption to improve materially. The aluminium scrap market's supply-demand weakness is unlikely to reverse in the short term.

Secondary aluminium alloy: Spot market: Last Thursday, the ADC12 market continued its stable price trend with limited fluctuations, as SMM ADC12 held steady at RMB 24,100 per tonne. With the Dragon Boat Festival approaching, downstream die-casting enterprises showed limited purchasing interest, mainly restocking as needed, and no significant holiday stockpiling was seen. Amid a lack of fresh drivers from both supply and demand sides, enterprises generally maintained stable prices and adopted a wait-and-see stance, with transactions dominated by rigid demand orders. In the short term, ADC12 prices are expected to continue moving sideways, with future focus on aluminium price trends, aluminium scrap supply, and the recovery of downstream orders after the holiday for market impact.

Aluminium market summary: The geopolitical risk premium is fading rapidly as the US-Iran peace agreement takes effect, and expectations of new project startups outside China are adding pressure, leaving LME aluminium under significant near-term strain.

The Fed's dot plot, releasing a hawkish shift makes the global macro front turn more bearish, exerting downward pressure on aluminium prices. China side, the accelerating destocking pace is a highlight, but absolute inventory remains in a relatively high range.

SHFE aluminium, without new macro-positive factors, follows LME aluminium under pressure, but supported by domestic destocking, the decline is relatively manageable. It is expected that aluminium prices will be in the doldrums in the short term.

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.