Geopolitical risks coupled with accelerating destocking, SHFE aluminium fluctuates and adjusts

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Futures: The most-traded SHFE aluminium 2607 contract closed at RMB 24,115 per tonne, down 0.76 per cent. Price was running below MA5 (24,415.00), MA10 (24,404.50), MA30 (24,549.33), and MA60 (24,658.42), with short- and medium-term moving averages in a bearish alignment and gradually pressing downward. The overall structure is clearly in the doldrums, with the moving averages above constituting significant resistance.

The MACD indicator's DIF (-99.0911) was below DEA (-78.9935), MACD histogram at -40.1953, bears' momentum continued to release, and the indicator showed persistent weakness. The recommended core trading range for SHFE aluminium is RMB 23,900-24,800 per tonne. The LME aluminium 3M contract closed at USD 3,612.5 per tonne, up 0.25 per cent, edging higher.

Price was running below MA5 (3,669.00) and MA10 (3,673.45) but held above MA30 (3,604.13) and MA60 (3,525.20). Long-term moving averages remain in a bullish alignment; short-term resistance is encountered, but the medium-term upward trend is intact. The MACD indicator's DIF (32.5799) was below DEA (42.1297), MACD histogram at -19.0996, near-term bulls' momentum continued to weaken, but the medium-term outlook remains robust. The recommended core trading range for LME aluminium is USD 3,600-3,750 per tonne.

Macro front: Iran attacked Israel again after two months. The Israeli military stated on June 7 that it detected two rounds of missiles launched from Iran toward Israel, with air raid sirens sounding across many parts of the country. The Israeli Air Force was intercepting the missiles and would “strike at relevant threats if necessary to eliminate the danger.” US President Trump said he would call Israeli Prime Minister Netanyahu to tell him “not to retaliate.”

Iran’s Vice President and Head of the Department of Environment Ansari Shina stated that Iran has initiated the drafting of the “Regulations on Environmental Service Fees for the Strait of Hormuz,” with the preliminary draft completed recently, but the fee standards and specific collection mechanisms have yet to be finalised.  As Fed Chairman Warsh Kevin prepared to chair his first monetary policy meeting (from June 16 to 17), US President Trump said it would be a mistake for the Fed to raise interest rates.

Fundamentals: Supply side, according to SMM data, China's aluminium production edged down last week, with the proportion of liquid aluminium rebounding by 0.12 percentage points W-o-W. Downstream demand for liquid aluminium was moderate, and the core focus remains on aluminium semis exports.

The downstream processing sector showed divergence in performance. Although in the off-season for consumption, strong export demand in some sectors partly offset weak domestic demand. Weekly operating rates for secondary alloy, aluminium plate/sheet and strip, and aluminium foil weakened, while the operating rate of primary alloy recovered.

The aluminium wire and cable and aluminium extrusion sectors were overall stable. In total, the weekly operating rate of leading downstream companies edged down by 0.1 percentage points W-o-W. Inventory side, this Monday, China's social inventory of aluminium ingot stood at 1.36 million tonnes, destocking by 26,000 tonnes from last Monday and 15,000 tonnes from last Thursday, as the destocking pace continued to accelerate.

Primary Aluminium Market: In early trading, the SHFE aluminium 2606 contract fluctuated downward, with the overall price centre moving lower from the previous trading day. Buying sentiment in east China picked up somewhat as aluminium prices declined, while some sellers remained on the sidelines, holding back from selling and raising their quotes. The mainstream spot transaction price was at a discount of RMB 100-110 per tonne against the SHFE 2606 contract. Last Friday, the selling sentiment index in east China was 2.91, down 0.04 W-o-W; the purchasing sentiment index was 2.84, up 0.19 W-o-W.

Recently, aluminium futures prices continued to decline from yesterday, and coupled with stockpiling demand from downstream on Friday, overall market buying sentiment picked up. Moreover, shipments from major suppliers were limited, and sellers showed notable sentiment to hold prices firm and hold back from selling, keeping quotes persistently high. Consequently, the actual transaction price range in central China centred around a discount of RMB 190-200 per tonne against the SHFE 2606 contract. Last Friday, the selling sentiment index in central China was 2.86, down 0.01 W-o-W; the purchasing sentiment index was 2.22, up 0.02 W-o-W.

Aluminium Scrap: Last Friday, SMM A00 price fell by RMB 10 per tonne from the previous trading day, while the aluminium scrap market remained generally stable. Supply side, the regulatory oversight of the "reverse invoicing" policy continued to tighten, with some provinces cancelling tax rebates and intensifying tax audits, which pushed up the cost of invoiced raw materials. Some enterprises in Anhui, Jiangxi, and other regions have already experienced production cuts or shutdowns. Inbound volumes at aluminium scrap collection and distribution hubs declined YoY, and tense scrap inventories fell due to reduced inflows.

Currently, compliance costs in the raw material recycling sector remain high, available supply of invoice-attached material continues to be tight, and the scarcity of invoices has become a core price support. Meanwhile, disruptions from the US-Iran conflict led to an inverted price spread between domestic and overseas markets, making low-priced, high-quality imported material scarce and weakening the supplement to the domestic market.

Demand side, the off-season effect became evident, downstream scrap utilization enterprises operated at low rates, end-user orders showed weak momentum, and enterprises maintained purchasing as needed and low inventory strategies, with a cautious procurement atmosphere. The aluminium scrap market is expected to continue its relatively strong fluctuations at elevated levels.

The tightness in compliant invoice-attached material will persist, providing bottom support for prices. The lagged contraction effect of imported aluminium scrap has not yet been fully released, and subsequent port arrivals will remain low, with limited import supplement under the pattern of overseas market outperforming domestic market. At the same time, as the off-season deepens, order sustainability for downstream scrap utilization enterprises is worrisome, and they will stick to purchasing as needed and low inventory strategies, making it difficult for procurement sentiment to improve significantly.

Secondary aluminium alloy: Spot side: Last Friday, mainstream ADC12 producers generally held prices steady, with the SMM ADC12 price flat at RMB 23,900 per tonne. On one hand, last Friday, SHFE aluminium and aluminium alloy futures prices moved sideways, and the cost side of aluminium scrap experienced limited fluctuations; on the other hand, downstream die-casting enterprises’ procurement pace was relatively stable, end-use demand showed no obvious increase, and market transactions were mainly based on rigid restocking.

In the short term, however, the tight supply of invoices and the increasingly stringent compliance supervision on the cost side are difficult to ease, and raw material and tax-related costs will remain high; on the supply side, if the shortage of invoices continues to intensify, the scale of production cuts in the industry will further expand.

Combined with low social inventory and a closed import window, spot circulation volume will be difficult to effectively expand. Meanwhile, the demand side remains weak, suppressing price increases. In the short term, ADC12 prices have limited downside room, and upward breakthroughs lack effective cooperation from the demand side. Overall, prices are expected to remain generally stable with slight rise.

Aluminium market summary: The geopolitical situation in the Middle East remains volatile, market wait-and-see sentiment is expected to persist, the overseas supply gap is expected to provide strong bottom support for aluminium prices, the US Fed’s rate hikes are wavering, and expectations of rising energy costs also provide bullish drivers for aluminium prices; however, relatively significant high inventory pressure in China is expected to limit the upside room for domestic aluminium prices, and in the short term, domestic aluminium prices are expected to mainly fluctuate 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.