Expectations for US Fed interest rate hikes ease marginally, aluminium’s continuous destocking underpins the market

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Futures: The most-traded SHFE aluminium contract opened at RMB 23,650 per tonne in the night session on July 30, with a high of RMB 23,725 per tonne, a low of RMB 23,630 per tonne, and finally settled at RMB 23,720 per tonne, up 0.40 per cent from the previous close. During this period, prices consolidated higher and closed with a bullish candlestick, holding firmly above the MA5 (23,587.56), MA10 (23,462.56), MA20 (23,346.68), MA40 (23,297.85), and MA60 (23,371.70) moving averages, which formed strong support and drove the price centre continuously higher.

Open interest edged down during this period, continuing the pattern of bearish position reduction, with the price rise fuelled by bear exits. Technically, on the 4-hour MACD, the DIFF (109.33) remained above the DEA (60.99), and the histogram continued expanding, indicating ample short-term bullish momentum. On July 30, LME aluminium opened at USD 3,181 per tonne, with a high of USD 3,211.5 per tonne, a low of USD 3,171.5 per tonne, and finally settled at USD 3,193 per tonne, up 0.52 per cent from the previous close.

The price extended its low-level consolidation and recovery, closing with a small bullish candlestick, holding above the short-term MA5 (3,178.34) and MA10 (3,172.71), and testing the MA20 (3,182.56) resistance, while the medium and long-term MA40 and MA60 still capped the upside. Trading volume edged up slightly on the day, while open interest declined notably, mainly from bearish position reduction, with bulls showing limited initiative to buy.

Technically, on the daily MACD, the DIFF (-31.41) was above the DEA (-47.23), and the histogram expanded slightly, as the low-level recovery continued, but the rebound height was constrained by the medium and long-term moving averages.

Macro front: US economic growth slowed more than expected in Q2, but robust consumption and business investment showed resilient domestic demand. Preliminary data from the US Bureau of Economic Analysis released on Thursday indicated that Q2 real GDP grew at an annualised rate of 1.5 per cent, below market expectations.

A decline in net exports weighed on the overall figure, but consumer spending and business investment remained strong, partially offsetting external pressures. Data from the US government on Thursday showed the June PCE price index fell 0.1 per cent M-o-M, marking the first monthly decline since the pandemic began in 2020, further explaining why the US Fed opted to hold rates steady this week. Annual PCE inflation slowed to 3.7 per cent from May's three-year high of 4.1 per cent.

Fundamentals: Supply side, the proportion of liquid aluminium in China continued to rise. Inventory side, China's aluminium social inventory destocked by 53,000 tonnes from last Thursday to 953,000 tonnes, and by 26,000 tonnes from this Monday.

At July month-end, destocking accelerated again and the inventory fell below the 1 million tonnes mark, providing solid support for aluminium prices. On the export front, the SHFE/LME price ratio continued to recover this week. As of July 30, the ratio had rebounded to 7.4, up 13.8 per cent from its earlier low of 6.5, while import losses narrowed to around RMB 3,300 per tonne, a reduction of over 45 per cent from the previous maximum loss of RMB 7,604 per tonne.

The operating rate of leading downstream processing enterprises in China's aluminium industry recorded 60.2 per cent this week, down 0.9 percentage points M-o-M. As the off-season effect deepened and rising aluminium prices suppressed purchasing, various sectors generally fell under pressure. Aluminium wire and cable and secondary aluminium saw the largest declines, while primary aluminium alloy, aluminium extrusion, aluminium plate/sheet and strip, and aluminium foil also weakened in tandem.

Primary aluminium market: The centre of SHFE aluminium 2608 contract futures was higher than the same period of the previous trading day during early trading. Rising aluminium prices noticeably dampened market purchasing sentiment. During the day, some suppliers quoted on par with the SHFE aluminium 2608 contract, and market price acceptance remained weak.

Mainstream transaction prices were mainly between a discount of RMB 10 per tonne and parity against the SHFE aluminium August contract. Today's shipment sentiment index in east China was 3.13, down 0.03 M-o-M; the purchasing sentiment index was 2.90, down 0.10 M-o-M. Aluminium futures rose again, keeping trading sentiment in the central China market sluggish.

Suppliers tended to sell large volumes at higher prices, resulting in ample spot circulation. However, downstream processing enterprises showed low purchase willingness, with only a few traders purchasing and stockpiling at low discounts. Ultimately, the actual transaction price range in the central China market was around a discount of RMB 120-160 per tonne against the SHFE aluminium August contract. Today's shipment sentiment index in central China was 3.18, up 0.06 M-o-M; the purchasing sentiment index was 2.80, down 0.02 M-o-M.

Aluminium scrap: Today, SMM A00 spot aluminium closed at RMB 23,630 per tonne, up RMB 230 per tonne from the previous trading day, with aluminium scrap market prices generally following the increase by RMB 100-200 per tonne across regions. Regarding price differences, as of July 30, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was approximately RMB 2,070 per tonne, while the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 860 per tonne.

Amid the consumption off-season, aluminium scrap suppliers' willingness to sell at low prices was generally low, keeping overall aluminium scrap prices firm. On the demand side, with the arrival of the high-temperature holiday period, the operating rate of downstream cast aluminium  alloy enterprises declined, and orders shrank; operating rates at secondary aluminium  plate/sheet and strip enterprises were moderate, but overall raw material demand support had clearly weakened compared with Q2.

In the short term, the tight supply of compliant, invoiced cargoes persists, and suppliers' reluctance to sell at low prices provides bottom support for prices. On the import side, the lagged effects of the UAE export ban and the EU's tariff policy increase will gradually become apparent in the coming months, with port arrivals, June-August, staying low.

On the demand side, the sluggish downstream orders trend is unlikely to change in the short term, and scrap utilisation enterprises will most likely continue their strategy of purchasing as needed and maintaining low inventories, making it difficult for the purchasing atmosphere to see significant improvement.

Secondary aluminium alloy: Spot side: Today, ADC12 market quotes showed a general upward trend, with most enterprises raising by RMB 100 per tonne. Driving factors side, influenced by the continuous rise in primary aluminium prices and futures, cost support further strengthened, and enterprises generally followed the uptrend.

However, demand side, with the arrival of the high-temperature holiday, downstream enterprises' operating rates dropped, orders at secondary aluminium plants shrank, shipment pace slowed, and actual transactions were subdued. Short-term market is expected to maintain a tug-of-war pattern between cost support and demand constraints, and future price trends will still need to closely track aluminium price fluctuations and changes in downstream procurement demand.

Comprehensive outlook: Recently, macro front improved expectations for US Fed interest rate hikes continued to ease marginal constraints on non-ferrous sector, domestically the proportion of liquid aluminium kept rising, and the Middle East geopolitical risk premium continued to overlay with domestic aluminium ingot destocking, jointly underpinning aluminium price performance. Short-term market confidence significantly strengthened.

However, overseas aluminium  long-term capacity is being continuously put into production, traditional end-use demand in China is weak, and repeated expectations for US Fed interest rate hikes and uncertainties in Middle East geopolitical situation are disturbing, putting some pressure on upside room for aluminium  prices. Short-term aluminium prices maintained a consolidation pattern 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.