Geopolitical conflicts combined with rate hike slowdown, aluminium prices stay strong and rise, yet upside resistance remains

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Futures: The most-traded SHFE aluminium 2608 contract closed at RMB 23,090 per tonne, down RMB 135 or 0.58 per cent from yesterday's settlement price. It opened the day at RMB 23,120 per tonne and fluctuated within a range of RMB 23,090–23,190 per tonne. Prices were above the 5-day MA (23,116.00) and 10-day MA (23,038.00) but below the 30-day MA (23,444.33) and 60-day MA (24,060.67).

Short- and medium-term moving averages formed a bearish alignment and gradually exerted downward pressure. The overall structure of consolidation on a subdued note was pronounced, with multiple overhead moving averages providing layers of resistance. On the MACD indicator, DIF (-236.1753) was above DEA (-319.1200), and the MACD histogram stood at 165.8894.

Bearish momentum has been waning. The core trading range for SHFE aluminium is expected at RMB 22,800–23,300 per tonne. The LME aluminium 3M contract settled at USD 3,153 per tonne, unchanged. Prices were above the 10-day MA (3,149.00) but below the 5-day MA (3,154.90), 30-day MA (3,276.05), and 60-day MA (3,440.16). Short- and medium-term moving averages formed a bearish alignment and gradually exerted downward pressure.

The overall structure of consolidation on a subdued note was pronounced, with multiple overhead moving averages containing prices. On the MACD indicator, DIF (-74.6714) was above DEA (-91.4128), and the MACD histogram stood at 33.4827. Bearish momentum has been waning, and the downward momentum has slowed. The core trading range for LME aluminium is expected at USD 3,100–3,250 per tonne.

Macro front: In H1 this year, China's GDP reached RMB 69.57 trillion, up 4.7 per cent Y-o-Y, with Q1 growth at 5 per cent and Q2 at 4.3 per cent. Total retail sales of consumer goods and services increased 2.7 per cent Y-o-Y.

The value-added of the services sector grew 5.2 per cent, and the value-added of industrial enterprises above designated size rose 5.4 per cent. China's fixed-asset investment fell 5.7 per cent Y-o-Yin H1, among which property development investment dropped 18 per cent, and the floor space of newly built commercial buildings sold decreased by 11.6 per cent.

At end-June, the floor space of commercial buildings pending sale fell 0.9 per cent Y-o-Y, marking the fourth consecutive month of decline. US President Trump convened an emergency meeting to discuss plans for a large-scale attack on Iran, with the core topic being "a new plan for a devastating strike on strategic targets in Iran." Iranian Deputy Foreign Minister Gharibabadi stated that Iran has never left the negotiating table; it was the US that tore up the memorandum of understanding, and Iran will never bow first to request negotiations with the US.

The US Central Command announced that at 3:00 PM Eastern Daylight Time on July 15, acting on President Trump's order, US forces launched a second wave of strikes on Iran that day, aimed at destroying Iranian military facilities that threaten the freedom of navigation in the Strait of Hormuz. Fed Chairman Warsh Kevin testified before Congress for the first time since taking office, with his testimony and Q&A spanning two days and covering multiple areas of market interest. Warsh acknowledged that June CPI and PPI data showed some improvement but pointed out that inflation indicators do not perfectly reflect underlying inflation conditions.

Warsh declared "zero tolerance" for inflation and firmly committed to restoring price stability. Although he did not explicitly state that monetary policy would be tightened, he noted that options to curb inflation include using interest rates.

Fundamentals: Markets outside China saw intensified geopolitical conflicts, with US-Iran negotiations currently suspended and expectations for the resumption of strait navigation slowing, leaving geopolitical risk premiums still in place.

Fed Chairman Warsh acknowledged that June CPI and PPI data showed improvement but noted that inflation indicators cannot perfectly reflect the underlying inflation situation. Although he did not explicitly state an intention to tighten monetary policy, he did not rule out the possibility of later using interest rates to curb inflation, and the pace of Fed rate hikes is expected to slow.

 In the Chinese market, although China's GDP reached RMB 69.57 trillion in H1, up 4.7 per cent Y-o-Y, real estate data remained unpromising, and traditional construction-end aluminium semis continued to be under pressure. On the domestic inventory side: on Thursday this week, aluminium  ingot inventory at major domestic consumption areas stood at 1.024 million tonnes, destocking by 23,000 tonnes from Monday and down 54,000 tonnes W-o-W from last Thursday, while the destocking pace slowed mid-week.

Primary aluminium market: In early trading, the centre of the SHFE aluminium 2606 contract was lower than the same period of the previous trading day. Affected by the off-season, market procurement sentiment remained weak today, with mainly just-in-time procurement and ample circulating cargo. Transactions were made at a discount of RMB 10-20 per tonne against the SHFE August contract.

Today, the east China shipment sentiment index was 3.11, up 0.03 from the previous trading day; the procurement sentiment index was 3.00, down 0.16 from the previous trading day. Today, the overall transaction atmosphere in the central China market turned slightly weaker compared with the previous two days.

Some downstream processing enterprises began to make small-volume purchases today, but traders' hedging sentiment fell significantly from the previous few days, procurement volumes decreased, and some suppliers lowered their selling quotations slightly. The actual transaction price range in the central China market centred around a discount of RMB 150-170 per tonne against the SHFE August contract. Today, the central China shipment sentiment index was 2.80, down 0.02 from the previous trading day; the procurement sentiment index was 2.22, down 0.01 from the previous trading day.

Secondary aluminium: Today, the SMM A00 spot aluminium price closed at RMB 23,180 per tonne, down RMB 90 per tonne from the previous trading day, and the aluminium scrap market remained stable overall. Regarding price differences, on July 15, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan recorded RMB 2,072 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 758 per tonne.

Supply-side constraints continued to intensify, with the impact of the reverse invoicing policy deepening further. News emerged from Shandong that the reverse invoicing policy would be suspended starting July, while production cuts and shutdowns spread among small and medium scrap utilisation enterprises in Anhui, Jiangxi, Hubei, and other regions, further tightening the scarcity of compliant, invoiced aluminium  scrap.

On the import side, the earlier inverted price spread between Chinese and overseas markets led to a shortage of high-quality overseas cargoes; due to a 1-3 month shipping lag, port arrivals remained at low levels from June to August. Meanwhile, the UAE’s scrap aluminium export ban and the EU’s tariff hikes further tightened overseas aluminium scrap supply.

This week, the aluminium scrap market is expected to continue moving sideways within a narrow range, with demand acting as a cap and costs providing a floor. The mainstream operating range for shredded aluminium tense scrap (priced based on aluminium content) is expected to stay around RMB 19,900-20,500 per tonne.

The pullback in spot primary aluminium prices limited further narrowing of the price spread between A00 aluminium and aluminium scrap, while the cost advantage of aluminium scrap over primary aluminium is unlikely to disappear in the short term. Demand-side support for aluminium scrap prices remains intact. If aluminium prices subsequently continue to slide, the substitution effect of primary aluminium for aluminium scrap will accelerate significantly.

Secondary aluminium alloy: Spot market: ADC12 market offers were largely steady today. The limited pullback in aluminium prices provided no clear price adjustment driver on the cost side. Meanwhile, downstream demand remained persistently weak, with insufficient order release. The market atmosphere was quiet, and wait-and-see sentiment was relatively strong. Against the dual backdrop of limited cost support and sluggish demand, the market maintained stable prices overall. ADC12 prices are expected to continue moving sideways within a narrow range in the short term.

Overall Outlook: Escalating geopolitical conflicts in the Middle East, coupled with delayed expectations for US Fed interest rate cuts, is supporting aluminium prices. However, the continued ramp-up of overseas aluminium capacity and weak demand for China’s architectural aluminium semis are likely to cap aluminium prices, with significant resistance on the upside. Overall, aluminium prices are expected to consolidate on a strong note in the short term, encountering resistance.

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.