Geopolitical risk premium exits the market, aluminium price under short-term pressure and fluctuating

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Futures: The most-traded SHFE aluminium contract opened at RMB 23,900 per tonne in the night session of June 16, reached a high of RMB 23,925 per tonne and a low of RMB 23,835 per tonne, and settled at RMB 23,895 per tonne, up 0.27 per cent from the previous close.

During this period, prices saw a mild recovery from lows in a choppy fashion, forming a small bullish candlestick while remaining below the 5-period moving average at 23,924.76 and below all medium and long-term moving averages: MA10 (24,000.04), MA20 (24,101.21), MA40 (24,245.53), and MA60 (24,337.30). All moving averages maintained a bearish downward alignment.

The prior low at 23,725 provided brief support, with downward momentum showing signs of a slowdown in the short term. Trading volume during this period was 55,800 lots, a significant contraction from the previous session, while open interest stood at 227,000 lots, down 2,532 lots from before. The futures presented a pattern of bearish position reduction. From a technical perspective, on the 4-hour MACD indicator, DIFF (-125.37) remained below DEA (-111.23), sustaining a death cross structure, with the green histogram at -28.27, indicating bearish momentum was still in strong territory.

On June 15, LME aluminium opened at USD 3,400.0 per tonne, reached a high of USD 3,400.0 per tonne and a low of USD 3,334.0 per tonne, and closed at USD 3,391.0 per tonne, up 0.24 per cent from the previous close. The session saw a modest rebound from lows after a sharp decline, remaining below the 5-period moving average at 3,443.76 and below all medium and long-term moving averages: MA10 (3,509.57), MA20 (3,558.58), MA40 (3,552.97), and MA60 (3,511.39), all of which maintained a bearish downward alignment.

Trading volume for the day was 41,806 lots, somewhat contracted, and open interest was 634,200 lots, down 9,244 lots, also reflecting bearish position reduction. On the daily MACD indicator, DIFF (-32.35) was below DEA (2.68), with the death cross persisting, and the green histogram at -70.05, showing bearish momentum remained firmly in strong territory.

Macro front: US President Trump said that negotiations on an agreement with Iran have entered phase two, adding that “this should be easier than phase one.” Trump stated that the US would not put any funding into Iran, and that the “only thing that matters” to him was that Iran never acquires a nuclear weapon, warning that Iran would suffer a “devastating blow” if its government sought to obtain one. Sources said Iran would be allowed to sell its oil and fuel overseas following the signing of a memorandum of understanding with the US this week.

The Bank of Japan announced a 25-basis-point rate hike, raising its policy rate from 0.75 per cent to 1 per cent, in line with expectations and to its highest level in 31 years. Starting in April 2027, it will pause its balance-sheet reduction and maintain monthly purchases of Japanese government bonds at around JPY 2 trillion.

Fundamentals: In South China, sharply lower absolute prices and steady destocking offset each other, and holders tried to raise prices in early trading. However, with expectations of sustained high spot-futures price spreads, there was still room for hedged selling, which instead eased availability and left upward moves lacking momentum.

On the demand side, downstream users were initially cautious but gradually turned to buying the dip after failing to push prices lower, providing some support. Traders were also willing to purchase non-premium cargo, and overall transactions were satisfactory. Aluminium ingot inventory in major consumption areas fell 0.25 M-o-M, with destocking mainly driven by Guangdong and Wuxi.

Primary aluminium market: The trading centre of SHFE aluminium in early trading was far lower than the same time yesterday. The sharp decline in aluminium prices, however, significantly boosted buying sentiment, driving sellers' offers and transaction prices steadily higher. Some sellers held back from selling and raised offers in response to falling prices. Mainstream spot transactions were at a discount of RMB 80-90 per tonne against the SHFE July contract.

The east China shipment sentiment index today was 2.83, down 0.13 M-o-M, while the purchase sentiment index was 3.06, up 0.30 M-o-M. SHFE aluminium futures prices tumbled during yesterday’s night session and this morning’s early trading. In the central China market, buying sentiment among downstream processing enterprises recovered somewhat, and stockpiling willingness increased.

Trading firms engaging in both spot and futures markets tended to quickly capture price differences, showing a notable tendency to hold prices firm and hold back from selling, which kept market offers high. Actual transaction prices in the central China market eventually centred on a discount of RMB 120-140 per tonne against the SHFE July contract. The central China shipment sentiment index today was 2.91, down 0.01 M-o-M, and the purchase sentiment index was 2.22, up 0.02 M-o-M.

Aluminium scrap: Yesterday, the SMM A00 price fell RMB 330 per tonne M-o-M to RMB 23,800 per tonne, and the aluminium scrap market broadly followed the decline. On the price difference front, the Foshan price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint was RMB 2,416 per tonne on June 16, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 1,765 per tonne. Since enterprise tax costs increased by more than 2 per cent Y-o-Y, these spreads narrowed, strengthening the floor for aluminium scrap prices.

Supply side, the "reverse invoicing" policy continued to tighten oversight, tax rebates were cancelled in some provinces, and stricter tax inspections pushed up the cost of invoiced raw materials, with production cuts and shutdowns spreading further in Anhui, Jiangxi, Hubei, and other areas. Compliance costs in raw material collection remain high currently, available invoiced cargo stayed tight, and invoice scarcity became the core support for aluminium scrap prices. Additionally, the price spread between Chinese and overseas markets remained inverted, leaving cheap, high-quality imports scarce and further weakening their supplement to China’s market.

Demand side, the off-season effect deepened, downstream scrap utilisation enterprises ran at low operating rates, terminal orders lacked follow-through, and companies maintained a cautious stance of purchasing as needed with low inventory strategies. Orders from downstream die-casting enterprises remain sluggish, with procurement mainly driven by rigid demand and small batches, and a lack of willingness to chase rising prices, keeping overall market trading activity low. End-use consumption shows little substantial improvement, with the demand side continuing to suppress upside room for prices.

Secondary aluminium alloy: The SMM ADC12 average price was RMB 24,100 per tonne yesterday, down RMB 100 per tonne from the previous day, with mainstream market quotations generally following the decline of RMB 100 per tonne. During the day, both cast aluminium futures and aluminium prices weakened, weighing on ADC12 prices to some extent; however, structural issues such as tight tax invoices and difficulties in procuring compliant aluminium scrap have not eased, and production costs of enterprises remain under pressure, providing strong support for spot prices.

Overall, the ADC12 market is currently in a tug-of-war pattern of strong cost support and weak demand follow-through. Short-term prices have limited downside room, but also lack sufficient momentum to break upward, and are expected to maintain a sideways trend. Import side, overseas ADC12 quotations continued to pull back to USD 3,350-3,390 per tonne, with immediate loss per ton around RMB 2,653, leaving the import window still closed.

Aluminium market summary: Macro front, the US and Iran have completed the signing of an electronic version of the Memorandum of Understanding, with expectations of easing geopolitical tensions continuing to materialise, market fears of geopolitical conflicts in the Middle East continuing to fade, and the geopolitical risk premium on commodities weakening significantly. US May CPI rose to 4.2 per cent Y-o-Y, hitting a three-year high, with core CPI also strengthening.

The market continues to bet on the US Fed resuming rate hikes within the year, and expectations of tightening liquidity continue to suppress metal valuations. Fundamentals side, the Middle East conflict has caused passive production cuts of aluminium capacity outside China, with expectations of a widening global supply deficit, coupled with expectations of higher energy costs, providing strong bottom support for LME aluminium. Domestic inventory, the destocking trend has been established, and the destocking logic continues to materialise. The rebound in the proportion of liquid aluminium, support from export demand, and supply standardisation compressing aluminium ingot formation are three fundamental factors driving the continuation of destocking. SMM maintains its expectation that inventory will drop to around 1.28 million tonnes in late June, and could further approach 1.2 million tonnes at the end of June to early July, providing some support for aluminium prices. However, high domestic inventory pressure remains relatively apparent, and with the current bearish macro sentiment dominating the market, short-term domestic aluminium prices are expected to mainly fluctuate weakly and adjust.

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.