Inventory buildup offsets macro tailwinds, aluminium prices fluctuate

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Futures: The most-traded SHFE aluminium 2606 contract closed at RMB 24,690 per tonne, up 0.57 per cent. The price was above MA5 (24,554.00), MA10 (24,614.50), and MA60 (24,532.25), but below MA30 (24,753.83), with short-term moving averages providing support while the price was under pressure at MA30. The MACD indicator DIF (-37.1805) was below DEA (18.0351), with the histogram in negative territory (-110.4312), indicating weakening bearish momentum. The suggested core trading range for SHFE aluminium is 24,000-25,200. LME aluminium 3M closed at USD 3,573.5 per tonne, down 0.22 per cent, moving sideways. The price was above MA5 (3,536.90), MA10 (3,527.40), and MA30 (3,527.32), and also above MA60 (3,387.01), with short-, medium-, and long-term moving averages all providing support, indicating an overall bullish trend. The MACD indicator DIF (27.9887) was below DEA (36.4100), with the histogram in negative territory (-16.8426), indicating weakening upward momentum. The suggested core trading range for LME aluminium is USD 3,500-3,620 per tonne.

Macro front: A spokesperson of the Ministry of Foreign Affairs announced that at the invitation of President Xi Jinping, US President Trump will pay a state visit to China from May 13 to 15. This will be the first face-to-face meeting between the two heads of state since their meeting in Busan last October, and the first visit to China by a US president in nine years. President Xi Jinping will have an in-depth exchange of views with President Trump on major issues concerning China-US relations as well as world peace and development. US-Iran negotiations have reached an impasse. US President Trump stated that the ceasefire agreement between the US and Iran remains in effect but is "extremely fragile" and in a "precarious" state. Trump said the core of the US proposal is that "Iran must never possess nuclear weapons," yet Iran did not make such a commitment in its response. Trump has not yet decided whether to restart the "freedom plan" to facilitate passage through the Strait of Hormuz. Iran's Ministry of Foreign Affairs stated that the negotiation priorities are ending the war, lifting sanctions, and resolving the blockade, and that decision on issues such as uranium enrichment will be made at an appropriate time.

Fundamentals: In China, the lifting of the installation suspension order, backlogged supplies entering warehouses, concentrated release of enterprise inventories, and cautious end-user stockpiling willingness combined to drive a continued increase in domestic aluminium ingot social inventory, exerting strong downward pressure on domestic aluminium prices. In markets outside China, geopolitical conflicts disrupted the aluminium supply side, and LME aluminium inventory continued destocking, hitting a multi-year historical low. Inventory side, on Monday, aluminium ingot inventory in major domestic consumption areas stood at 1.44 million tonnes, down 1,000 tonnes W-o-W from last Friday, with destocking mainly in Guangdong and Gongyi.

Primary aluminium market: Yesterday morning, the SHFE aluminium 2605 contract fluctuated upward, with the overall price centre rising compared to the previous trading day. Driven by higher aluminium prices, market selling sentiment rose notably yesterday, with increased activity on the offer side but no significant improvement on the buy side. The mainstream spot quotation fell from the SMMA00 aluminium average price to SMMA00-RMB 10 per tonne. Yesterday, the east China market selling sentiment index was 2.91, up 0.17 W-o-W; the purchasing sentiment index was 2.66, flat W-o-W. Yesterday, the trading atmosphere in the central China market remained relatively subdued, but improved slightly W-o-W. Buying sentiment among downstream processing enterprises remained sluggish. As aluminium prices rose, market premiums showed a downward trend, with quotations falling from a premium of RMB 20-30 per tonne over the central China price before the opening to between a premium of RMB 10 per tonne and a discount of RMB 10 per tonne to the central China price. Yesterday, the central China market selling sentiment index was 2.82, up 0.01 W-o-W; the purchasing sentiment index was 2.29, up 0.01 W-o-W.

Aluminium scrap: Yesterday, A00 aluminium prices rose RMB 170 per tonne from the previous trading day, and aluminium scrap market prices generally followed with increases of RMB 100-200 per tonne. The mainstream range for shredded aluminium tense scrap (priced based on aluminium content) operated around RMB 20,500-21,000 per tonne (tax exclusive). Imported zorba (Ningbo Port) operated in the range of RMB 21,670-21,970 per tonne (tax inclusive). Regarding the price spread, on May 11, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was recorded at RMB 2,643 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 1,998 per tonne. Supply side, the shipment pace of aluminium scrap in May remained generally stable compared to April YoY, raw material prices swung wildly, and aluminium scrap yards generally held back from selling and held prices firm; high LME prices led import traders to adopt cautious strategies, and subsequent imports are expected to pull back. Demand side, the traditional off-season set in, the operating rate of secondary aluminium producers pulled back slightly, aluminium tense scrap was purchased as needed with low inventory operations, wrought aluminium alloy scrap was supported by secondary aluminium plate/sheet and strip operating rates but with limited strength, downstream demand was mainly rigid with strong wait-and-see sentiment. This week, the aluminium scrap market is expected to remain in the doldrums at high levels, with the mainstream range for shredded aluminium tense scrap (priced based on aluminium content) maintained at RMB 20,500-21,300 per tonne (tax exclusive). Supply side, policy constraints are unlikely to ease in the short term, tight compliant supply sources coupled with expected pullback in imports provided certain price support. Demand side, the off-season effect continued, downstream secondary aluminium enterprises remained cautious and watchful, purchasing mainly through small rigid-demand restocking orders, the divergence pattern between aluminium tense scrap and wrought aluminium alloy scrap remained unchanged, order increments were limited, and vigilance is still needed against market risks from aluminium price fluctuations and tight supply.

Secondary aluminium alloy: Spot cargo side, the ADC12 market was generally stable with slight rise yesterday. Most enterprises raised quotations by RMB 100 per tonne, following the SHFE aluminium futures rebound and rising aluminium scrap raw material costs. Although market sentiment has recovered somewhat, weak downstream demand remains a significant constraining factor, leading enterprises to adopt a cautious pricing mentality, with most following the prevailing market trend. In the short term, ADC12 prices are expected to move sideways within a narrow range amid the tug-of-war between cost support and lacklustre demand.

Aluminium Market Summary: Supply disruption risks for aluminium outside China have not yet subsided, and the ex-China aluminium ingot supply-demand gap will continue to provide support for aluminium prices; meanwhile, the continuation of higher-than-expected inventory buildup in China will weigh on domestic aluminium prices. At the same time, tightened invoicing regulations may lead to structural tightness in spot cargo, and the weakening spot market will further limit upside room for domestic aluminium prices. Close attention should be paid to the potential turning point in China's social inventory, which could drive a rebound in aluminium prices.

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.