Ex-China supply gap supported prices to hold up well; China focused on aluminium ingot social inventory turning point

Note: The image used in this article is taken from the company's official website

Macro perspective: The Middle East geopolitical situation remained volatile, with US-Iran negotiations experiencing repeated setbacks.

On April 8, the US and Iran announced a two-week ceasefire to initiate negotiations; on the same day, Israel launched a large-scale attack on Lebanon, and sources said Iran would not engage in peace talks with the US until a ceasefire was achieved in Lebanon, with the US-Iran negotiations originally scheduled for April 10 postponed to April 11.

On April 13, Iranian Foreign Minister Araghchi posted on social media that the Iran-US negotiations held in Islamabad, the capital of Pakistan, were only "one step away" from reaching an agreement, but the US side demanded too much, kept changing its requirements, and threatened to impose a blockade; the US Central Command announced that the US military would impose a blockade in the Gulf of Oman and the Arabian Sea east of the Strait of Hormuz, applicable to all vessels regardless of the flag they fly;

On April 15, Iran proposed that if an agreement could be reached to prevent a renewed conflict, Iran might consider allowing vessels to navigate freely on the Omani side of the Strait of Hormuz without facing attack risks, and this proposal has been incorporated into its negotiation proposal.

Beyond the Middle East, macro news was mixed.

Ex-China, the US Fed's Beige Book released on April 16 showed that the Middle East conflict was seen as a major source of uncertainty, consumer price sensitivity increased, and real estate market activity was weak; energy costs rose and inflationary pressures increased; some US Fed officials were inclined to keep interest rates unchanged for the foreseeable future; the International Monetary Fund (IMF) released its latest World Economic Outlook report on April 14, revising down the 2026 global economic growth forecast by 0.2 percentage points to 3.1 per cent.

In China, the General Office of the State Council recently issued the Opinions on Deepening the Reform of Investment Approval System, proposing that for industrial sectors with prominent disorderly competition, temporary regulatory measures such as suspension of approvals and filings may be implemented with the consent of the State Council, with specific requirements, timelines, and operational methods clearly defined; in March, CPI rose 1.0 per cent Y-o-Y, maintaining a mild increase with the growth rate higher than the Q1 average, and the Producer Price Index (PPI) rose 0.5 per cent Y-o-Y, marking the first increase after 41 consecutive months of decline; on April 16, the National Bureau of Statistics (NBS) released Q1 national economic performance data, showing that Q1 GDP grew 5.0 per cent Y-o-Y, with major macro indicator growth rates rebounding, new momentum growing rapidly, and the national economy achieving a good start.

Fundamentals: Supply side, affected by large-scale production cuts at Middle East aluminium smelters, ex-China aluminium fundamentals showed a notable supply gap; in terms of price trends, LME aluminium outperformed SHFE aluminium, the SHFE/LME price ratio declined, import losses widened, and China's net primary aluminium imports were expected to decrease. However, as China's operating aluminium capacity stayed high, the supply-side fundamentals had not yet shown a notable gap. Demand side, affected by reduced aluminium supply, surging energy costs, and tight oil supply, some ex-China downstream processors cut or halted production; in China, as the peak season deepened, downstream operating rates rebounded, coupled with incremental export orders for some aluminium products, demand was moderate. However, aluminium billet processing fees performed weakly, with some billet producers cutting production, and the overall aluminium billet operating rate rebound fell short of expectations. Overall, the weekly liquid aluminium operating rate declined 0.08 percentage points this week. As of Thursday, nationwide aluminium ingot social inventory decreased by 11,000 tonnes from Monday, but saw an inventory buildup of 1,000 tonnes W-o-W. It was reported that the social inventory inflection point had emerged in the Gongyi area, but some aluminium ingots in the Wuxi area were still piling up awaiting warehousing, and whether the social inventory inflection point can arrive smoothly deserves attention.

In summary, the Middle East negotiation process continued to face setbacks, but the ex-China supply gap and continued LME inventory destocking supported LME prices to hold up well; China's aluminium ingot inventory remained at high levels, and attention should be paid to whether the domestic inventory inflection point can arrive smoothly. The most-traded SHFE aluminium contract is expected to trade in the range of RMB 24,800-26,000 per tonne next week, with LME aluminium in the range of USD 3,550-3,750 per tonne.