Geopolitical easing and manufacturing weakness exert dual pressure; SHFE and LME aluminium prices plunge sharply

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Futures: The most-traded SHFE aluminium contract opened at RMB 24,025 per tonne in the night session of June 15, hit a high of RMB 24,025 per tonne, a low of RMB 23,730 per tonne, and closed at RMB 23,795 per tonne, down 1.55 per cent from the previous close.

During the session, prices fluctuated and pulled back before plunging sharply, forming a large bearish candlestick that fell below the 5-period MA of 24,021.00 and simultaneously traded below all medium and long-term moving averages—MA10 (24,075.37), MA20 (24,156.80), MA40 (24,286.94), and MA60 (24,372.72).

The overall alignment of moving averages across all periods maintained a bearish downward orientation. Support at the previous low of 23,825 was directly breached, and short-term downward selling pressure was intensively released. Trading volume in this session was 127,000 lots, an increase of 30,071 lots from the prior session, and open interest was 239,000 lots, up 13,497 lots, showing a characteristic of increased bearish positions.

From a technical perspective, on the 4-hour MACD indicator, DIFF (-107.76) was below DEA (-104.30), forming a dead cross, with the green STICK value at -6.92, indicating strengthened bearish momentum. On June 15, LME aluminium opened at USD 3,536.0 per tonne, hit a high of USD 3,560 per tonne, a low of USD 3,357 per tonne, and closed at USD 3,383.0 per tonne, down 4.52 per cent from the previous close.

That day, prices plunged sharply, forming an extremely long bearish candlestick that fell directly below MA5 (3,478.94) and traded below all-period moving averages—MA10 (3,539.21), MA20 (3,577.20), MA40 (3,561.49), and MA60 (3,515.54).

The bearish alignment of all-period MAs further widened, and support from previous lows was entirely lost. Trading volume that day was 48,091 lots, up 24,198 lots from the prior session, and open interest was 643,394 lots, down 5,917 lots, showing a characteristic of reduced bullish positions.

From a technical perspective, on the daily MACD indicator, DIFF (-20.54) was below DEA (11.43), with the dead cross structure continuing to deepen, and the green STICK value at -63.94, indicating notably strengthened bearish momentum.

Macro Front: US manufacturing output was flat in May on a M-o-M basis, marking the first stagnation this year and indicating that supply chain shocks and cost surges from the Iran war may be starting to weigh on manufacturing activity. The US and Iran signed an electronic Memorandum of Understanding, and President Trump stated that the specific text might be released sometime after Friday (June 19).

In remarks to The New York Times on the 14th local time, Trump said that Iran will be allowed to conduct limited, low-level uranium enrichment and that the new US-Iran agreement will ensure that “Iran’s uranium enrichment will be used only for non-military purposes.”

Fundamentals: According to data from the China Motorcycle Chamber of Commerce, in May, motorcycle production and sales reached 2.218 million units and 2.1516 million units, down 2.67 per cent M-o-M and 5.28 per cent M-o-M, and up 18.09 per cent Y-o-Y and 12.83 per cent Y-o-Y, respectively. From January to May, motorcycle production and sales totalled 9.8208 million units and 9.8181 million units, with production and sales increasing 11.18 per cent Y-o-Y and 11.04 per cent Y-o-Y, respectively.

In May, motorcycle industry production and sales increased Y-o-Y but pulled back M-o-M, while exports maintained high growth. Cumulative from January to May, exports continued to provide steady boost, domestic sales improved, and both production and sales rose steadily, with overall industry operations stable and improving. Inventory side, aluminium ingot inventory in major consuming regions fell 0.7 W-o-W this Monday, with destocking mainly driven by Guangdong and Wuxi.

Primary aluminium market: In early trading, the SHFE aluminium 2606 contract fluctuated, with aluminium prices staying at relatively high levels. However, affected by high aluminium prices, downstream purchasing sentiment weakened, pushing quotes and transaction prices lower. The mainstream spot transaction price was at a discount of RMB 90~100 per tonne against the SHFE July contract.

Yesterday in east China, the selling sentiment index was 2.96, flat from the previous day; the buying sentiment index was 2.76, down 0.06 from the previous day. In the night session, aluminium futures prices rose again. Before the opening, quotes in the central China market were already showing a weakening trend; after the opening, absolute prices pulled back.

Downstream processing enterprises showed strong wait-and-see sentiment, with purchasing sentiment weak, and suppliers had weak willingness to hold prices firm, as quotes declined continuously. Eventually, actual transaction prices in the central China market hovered around a discount of RMB 170-190 per tonne against the SHFE July contract. Yesterday in central China, the selling sentiment index was 2.92, up 0.01 from the previous day; the buying sentiment index was 2.20, down 0.01 from the previous day.

Aluminium scrap: Yesterday, SMM A00 price fell RMB 10 per tonne from the previous trading day to RMB 24,130 per tonne, while the aluminium scrap market held broadly steady. Regarding the price spread between primary and scrap aluminium, on June 15, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was recorded at RMB 2,640 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap stood at RMB 2,103 per tonne.

The continuous narrowing of the spread reflects relatively strong underlying support for aluminium scrap. On the supply side, the regulatory enforcement of the "reverse invoicing" policy has continued to tighten. In some provinces, tax rebates were cancelled and tax audits intensified, leading to higher costs for raw materials with invoices. Production cuts and shutdowns further spread across enterprises in Anhui, Jiangxi, Hubei, and other regions.

Currently, compliance costs in the raw material collection segment remain high. Available supply of raw materials with invoices stayed tight, with the scarcity of invoices serving as a key support for aluminium scrap prices. Moreover, the price spread between Chinese and overseas markets remained inverted, making low-priced, high-quality imported supply scarce and further weakening the supplement to the domestic market. On the demand side, the off-season effect continued to deepen.

Downstream scrap utilisation enterprises saw their operating rates remain low, with end-user orders struggling to follow through. Enterprises maintained a strategy of purchasing as needed and keeping low inventories, with a cautious procurement atmosphere.

Downstream die-casting enterprises' orders remained sluggish; their purchases were mainly based on rigid demand and small batches, with insufficient willingness to rush to buy amid price rises. Market trading activity stayed low. End-use consumption saw little substantial improvement, and the demand side continued to suppress the upside room for prices.

Aluminium scrap prices are expected to continue fluctuating at highs with a bearish bias, but downside room is limited. The tightness of compliant invoiced cargo persists, and invoice scarcity provides bottom support for aluminium scrap prices. The lagging contraction effect of imported aluminium scrap has not yet fully materialised, and subsequent port arrivals will remain low. Meanwhile, as the off-season deepens, concerns grow over the sustainability of orders for downstream scrap utilisation enterprises.

These enterprises maintain strategies of purchasing as needed and low inventory, with little significant improvement in the purchasing atmosphere, resulting in an overall pattern of weak supply and demand.

Secondary aluminium alloy: Spot Market: Yesterday, ADC12 enterprise quotations generally rose, with upward adjustments mainly concentrated at around RMB 100 per tonne. Currently, the supply of compliant aluminium scrap resources is tight, procurement difficulty is increasing, aluminium scrap prices stay high, and enterprise production costs have risen significantly.

Meanwhile, some enterprises reported that tight raw material supply continues to affect normal production, and the risk of production cuts has increased again. With strengthening expectations of supply-side contraction, enterprises generally maintain a strong willingness to hold prices firm and actively pass through cost pressures to downstream by raising prices.

However, demand-side performance remains relatively mediocre, with limited improvement in downstream orders, constraining sustained price increases to some extent. Overall, the ADC12 market remains in a pattern of "strong cost support and weak demand follow-through," and in the short term, the price centre is expected to continue to hold up well.

Aluminium market summary: Macro front, the US and Iran have completed the signing of an electronic version of a memorandum of understanding. Expectations of geopolitical easing continue to materialise, market panic over Middle East geopolitical conflicts continues to subside, and commodity geopolitical risk premiums have weakened significantly.

US May CPI rose 4.2 per cent Y-o-Y, hitting a three-year high, while core CPI also strengthened. The market continues to game whether the US Fed will resume rate hikes this year, and expectations of liquidity tightening continue to suppress metal valuations.

Fundamentals side, the Middle East conflicts have caused involuntary production cuts in aluminium capacity outside China, and expectations of a widening global supply gap, combined with rising energy cost expectations, provide strong bottom support for LME aluminium.

Domestically, the inventory destocking trend has been established, and the destocking logic continues to materialise. The rebound in the proportion of liquid aluminium, export demand support, and supply standardisation reducing aluminium ingot formation volume — these three fundamental factors jointly drive the continuation of destocking. SMM maintains its judgment that inventory will drop to around 1.28 million tonnes by late June, and is expected to further approach 1.2 million tonnes by late June to early July, providing certain support for aluminium prices.

However, domestic high inventory pressure remains relatively noticeable, and with the bearish macro sentiment currently dominating the market, short-term domestic aluminium prices are primarily expected to fluctuate and adjust with a weak bias.

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.