Expectations for US fed rate hikes delayed, aluminium prices’ short term weakness hard to break

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Futures: SHFE aluminium closed at RMB 22,510 per tonne, edging up 0.09 per cent. The price remained below the MA5 (22,580) and all medium and long-term moving averages, with the bearish alignment of the moving average system continuing, but it has moved sideways around 22,500 for two consecutive days, with the near-term decline slowing somewhat.

The MACD indicator showed DIF at -516.94 and DEA at -389.51, with a death cross downward. The negative histogram narrowed to -254.86 (prior day -283.18), with bearish momentum weakening for a second consecutive day. Trading volume shrank to 77,800 lots, with strong wait-and-see sentiment in the market. The suggested core trading range for SHFE aluminium is 22,200-22,700. LME aluminium closed at USD 3,083 per tonne, down 0.31 per cent.

The price remained well below all key moving averages (MA5=3,115.4, MA10=3,189.45, MA30=3,453.52, MA60=3,507.53), with a bearish alignment of moving averages and continued weakness. The MACD indicator showed DIF at -127.98 and DEA at -99.52, with a death cross downward. The negative histogram narrowed to -56.91 (prior day -56.59), with bearish momentum basically flat. The suggested core trading range for LME aluminium is 3,050-3,110.

Macro front: Data released by the US Bureau of Labour Statistics showed that US nonfarm payrolls rose by 57,000 in June, far below market expectations of 110,000, the lowest level in nearly four months; data for April and May were revised down by a combined 74,000. The unemployment rate unexpectedly fell to 4.2 per cent in June, the lowest level since June 2025, compared to expectations of 4.3 per cent. After the data release, traders fully priced in the US Fed interest rate hike being delayed to December this year.

Oman opposes imposing transit fees on ships passing through the Strait of Hormuz but is open to discussing charges related to maritime services. Meanwhile, some major European nations acknowledged that tolls in the Strait of Hormuz have become inevitable. Earlier, there were reports that Oman had proposed a plan to charge service fees for ships passing through the Strait of Hormuz.

Fundamentals: Supply side, according to SMM data, China’s aluminium production in June 2026 (30 days) increased 2.2 per cent Y-o-Y and fell 3.1 per cent M-o-M. Although weak domestic demand weighed on sectors across the board, aluminium semis export demand provided effective support for domestic liquid aluminium consumption.

The domestic proportion of liquid aluminium edged up, with the liquid aluminium ratio rising 0.7 percentage points M-o-M to 77.2 per cent, primarily driven by improved profits for some processed aluminium semis, which led to a slight increase in liquid aluminium purchasing demand. On the inventory side, aluminium inventory continued to destock smoothly this week.

As of Thursday, China’s aluminium ingot social inventory fell by 75,000 tonnes W-o-W to 1.13 million tonnes and fell by 35,000 tonnes from Monday. Aluminum prices weakened, downstream buying sentiment rebounded, and aluminium ingot warehouse withdrawals hit a nearly four-year high over the past week, driving aluminium ingot destocking.

In exports, the SHFE/LME price ratio continued to recover this week. As of July 2, the ratio had rebounded to 7.31, up 12.5 per cent from the earlier low of 6.5, while the import loss narrowed to around RMB 3,300 per tonne, a contraction of over 45 per cent from the prior maximum loss of RMB 7,604 per tonne.

As a result, the profit margin that had been driving heavy aluminium semis exports narrowed rapidly, with new orders already declining in some segments. As orders on hand are gradually fulfilled, if export margins cannot recover, aluminium semis exports may face reduction risks.

Primary aluminium market: In early trading, the SHFE aluminium 2606 contract held its centre at a higher level compared to the same period of the previous trading day. Warrant-based supply continued to flow into the market, keeping spot supply broadly ample.

Downstream saw only sporadic restocking, and with bearish sentiment pervasive in futures, end-user purchase willingness was generally weak. Mainstream transactions were done at parity to a premium of RMB 20 per tonne against the SHFE aluminium 07 contract. Yesterday in east China, the selling sentiment index was 2.91, up 0.08 from the previous day; the buying sentiment index was 2.73, flat from the previous day.

Futures aluminium pulled back from the previous early session. Yesterday, the spot market in central China saw slightly warmer trading sentiment, with downstream processing enterprises’ sentiment of rushing to buy amid price rises coming into play. The recovery in absolute prices also boosted suppliers’ selling willingness, driving overall trading volume higher from the previous day.

Ultimately, actual transaction prices in central China centred around a discount of RMB 40-60 per tonne against the SHFE aluminium 07 contract. Yesterday in central China, the selling sentiment index was 2.88, up 0.02 from the previous day; the buying sentiment index was 2.11, up 0.01 from the previous day.

Aluminium scrap: Yesterday, SMM A00 spot aluminium closed at RMB 22,540 per tonne, up RMB 280 per tonne from the previous trading day, with aluminium scrap prices broadly following the rise. Supply remained tight. Regulatory oversight on the “reverse invoicing” policy continued to tighten, causing production cuts and shutdowns to spread among small and medium scrap utilisation enterprises in Anhui, Jiangxi, and Hubei, while Shandong also saw reports of a halt in reverse invoicing from July, further increasing the scarcity of compliantly invoiced aluminium scrap.

In terms of price spreads, on July 2, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan stood at RMB 1,929 per tonne, and that between A00 aluminium and shredded aluminium tense scrap was RMB 621 per tonne, narrowing by RMB 208 per tonne and RMB 539 per tonne, respectively, from last Thursday. Notably, under the dual impact of rapidly falling aluminium prices and tight invoice availability, the price spread for tense scrap narrowed sharply.

Some cast aluminium alloy enterprises have begun to use A00 aluminium ingots instead of aluminium scrap as raw materials. On the import front, in addition to the lag effect of 1-3 month shipping schedules keeping port arrivals low from June to August, the UAE imposed a four-month temporary ban on aluminium scrap exports starting in June, and the EU plans to impose a 15 per cent tariff from September.

These factors have significantly strengthened expectations of tightening supply of high-quality scrap outside China, and the import supply chain will suffer substantial damage. The aluminium scrap market is expected to continue its consolidation in the doldrums, but with limited downside room for prices.

The mainstream price range for shredded aluminium tense scrap priced based on aluminium content is expected to operate at RMB 19,200–19,800 per tonne (excluding tax). Supply side, constraints from the reverse invoicing policy are unlikely to reverse in the short term, and the tight supply of compliant cargo with invoices persists.

On the import front, the lagged suppression effect from multiple headwinds on actual port arrivals will gradually manifest in the coming months, further weakening the supplement from imported aluminium scrap. Demand side, against the deepening off-season, downstream operating rates remain low, terminal orders show little substantial improvement, and scrap utilisation enterprises are likely to continue purchasing as needed and maintain low inventory strategies.

The price difference between A00 aluminium and aluminium scrap has narrowed to a historical low, greatly eroding the cost advantage of scrap over primary aluminium. If aluminium prices continue to decline, the substitution effect will accelerate.

Secondary aluminium alloy: Spot side: Yesterday, ADC12 market quotes generally showed an upward trend. SMM ADC12 price rose RMB 100 per tonne from the previous day to RMB 23,800 per tonne. Along with the rebound in aluminium prices and aluminium alloy futures, market sentiment partly recovered, and enterprises’ willingness to follow the price increase strengthened notably.

Meanwhile, procurement costs for aluminium scrap remain at a relatively high level, providing continuous support to ADC12 prices from the cost side and prompting enterprises to actively lift their quotes.

However, from the demand side, improvement in downstream purchasing sentiment has been limited, terminal orders remain mediocre, and market transactions are dominated by just-in-time procurement. The actual transacted volumes after the price increase still need further verification. In the short term, ADC12 prices will continue to move sideways in a narrow range.

Aluminium market summary: Macro front saw new bullish signals. US June nonfarm payrolls added only 57,000 jobs, far below expectations, and prior figures were revised sharply lower. Traders fully priced in the Fed’s rate hike being delayed until December, leaving the US dollar under pressure and providing some support to metal prices.

The US and Iran have been discussing the return of funds and strait security, and nuclear talks are about to commence. Geopolitical risk premium continues to converge, while disputes over the management of the Strait of Hormuz persist, and the resumption of navigation through the strait remains uncertain.

Domestically, the proportion of liquid aluminium continued to rise, and aluminium ingot warehouse withdrawals over the past week hit a near four-year high. The accelerated destocking pace is the biggest highlight recently, but absolute inventory levels remain in a high range. Recently, with the geopolitical risk premium continuing to converge and expectations of new projects coming online outside China, macro headwinds still dominate. LME aluminium faces significant short-term pressure, and China’s domestic aluminium prices are expected to follow LME aluminium in the doldrums.

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.