Liquidity tightening suppresses risk appetite, destocking supports aluminium prices to hold up well

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Futures: SHFE aluminium closed at RMB 24,190 per tonne, up 0.64 per cent, hitting a new recent high. The price stood well above all key moving averages (MA5=23,998, MA10=23,815, MA30=23,312, MA60=23,720), with the MA system in a bullish alignment, confirming a clear medium-term uptrend. The MACD indicator showed DIF at 184.13 and DEA at 75.84, maintaining a golden cross above the zero axis, with the histogram bar expanding to 216.59, indicating growing bullish momentum.

Trading volume contracted slightly to 43,800 lots, showing a minor volume-price divergence. The suggested core trading range for SHFE aluminium is 23,800-24,500. LME aluminium closed at USD 3,346.5 per tonne, up 0.34 per cent, extending its strong performance.

The price was well above all key moving averages (MA5=3,292.9, MA10=3,247.35, MA30=3,183.2), with the MAs in a bullish alignment and the medium-term uptrend intact. The MACD histogram bar expanded to 50.83 (from 40.3 the previous day), reflecting sustained bullish momentum. The suggested core trading range for LME aluminium is 3,320-3,380.

Macro Front: US President Trump stated that Iran is demanding compensation for losses suffered during the past five months of military conflict, and that the US is likewise demanding compensation from Iran, having instructed its representatives to explicitly incorporate this demand into all future negotiations. The 30-year US Treasury yield rose to 5.27 per cent, a 19-year high, while the 10-year yield reached 4.75 per cent, once again nearing 5 per cent.

Fundamentals: Supply side, China's weekly aluminium production remained basically stable this week, with the proportion of liquid aluminium rising 0.19 percentage points M-o-M. Outside China, aluminium supply is expected to continue increasing as new project ramp-ups and production resumptions progress.

However, the global aluminium ingot destocking trend remained unchanged in the short term. Demand side, the downstream processing industry was in the traditional consumption off-season, with total operating rate under pressure; aluminium billet processing fees pulled back, weakening substitution demand for aluminium ingots. Inventory side, China's aluminium social inventory continued its destocking trend this week.

As of Monday this week, China's aluminium ingot social inventory destocked by 16,000 tonnes W-o-W from last Thursday to 917,000 tonnes, and by 41,000 tonnes from last Monday, with the destocking pace narrowing further. Meanwhile, aluminium billet inventory posted a slight buildup, increasing by 4,000 tonnes W-o-W. The aluminium ingot inventory is expected to continue its destocking trend in the short term.

Primary aluminium market: In early trading, the SHFE aluminium 2608 contract continued to run at high levels, with prices above RMB 24,000 per tonne somewhat suppressing downstream procurement, while trading among traders was relatively active. Today's SHFE spot aluminium premiums were mainly centred on a trading range of RMB 8-40 per tonne to RMB 08-20 per tonne. SHFE aluminium futures continued to rise, and sentiment for spot trades in the central China market cooled slightly.

Downstream processing enterprises were constrained by insufficient orders and the continuous increase in aluminium prices, with overall purchase willingness remaining subdued; only trading firms engaging in both spot and futures markets conducted arbitrage purchases. However, against the backdrop of quickly narrowing premiums, sellers increased shipments, and the firmness of their quotes softened.

Ultimately, actual transaction prices in the central China market were mainly concentrated at a discount of RMB 120-140 per tonne against the SHFE aluminium August contract. Today, aluminium prices extended their gains, and the spot market stabilised and improved. Arrivals remained limited, with inventory showing little increase.

Most suppliers were still in no rush to sell for cash at elevated prices, choosing to hold prices firm and sell slowly, while firmly maintaining the baseline of no discount. Quotes ranged from 0 to +10; market liquidity eased somewhat but at a manageable scale. Downstream, faced with high aluminium prices, purchase demand was mediocre, and rigid support also weakened. However, traders gradually entered the market to increase purchases of non-premium cargoes, and large players even strongly bid up prices to procure goods and make a market. Transactions were overall satisfactory.

Aluminium scrap: Today, SMM A00 spot aluminium price closed at RMB 23,990 per tonne, up RMB 10 per tonne from the previous trading day. China's aluminium scrap market mainly held steady with a wait-and-see stance, with only baled UBC catching up on gains, posting a daily rise of up to RMB 100 per tonne.

In terms of the price difference between A00 aluminium and aluminium scrap, on August 10, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was about RMB 2,370 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was about RMB 1,160 per tonne.

As primary aluminium prices continued to rise, aluminium scrap lacked momentum to follow, and the price spread widened again. Demand for secondary aluminium alloy and its downstream sectors weakened marginally. Coupled with high inventory of wrought aluminium alloy scrap raw materials such as doors and windows in Henan and other regions, the price transmission mechanism for aluminium scrap was hindered, and the momentum to follow the rise was clearly insufficient.

Affected by the traditional consumption off-season, operating rates of downstream cast aluminium alloy enterprises continued to decline, order volumes shrank, and the aluminium scrap market lacked substantial support. Looking ahead, the supply-demand mismatch is unlikely to reverse in the short term.

Scrap utilisation enterprises will likely maintain purchase-as-needed and low-inventory operating strategies, and trading sentiment in the market will be difficult to see substantial improvement. This week, shredded aluminium tense scrap prices based on aluminium content are expected to be weighed down by stagnant raw material prices and weak downstream demand, remaining under pressure overall, with the mainstream range expected to hover around RMB 20,200-20,800 per tonne.
Secondary aluminium alloy: spot market: ADC12 market quotes were generally stable today, with the industry broadly lacking willingness to adjust prices. Recently, futures have strengthened, and inquiries from trading firms engaging in both spot and futures markets have become somewhat more active.

However, constrained by weak end-use demand, spot transaction volumes were limited, and price follow-through lacked substantial support. Meanwhile, the cost side continued to provide bottom support, prices were under pressure from both sides, and the market remained in a wait-and-see stance overall. In the short term, ADC12 prices are expected to continue consolidating with stability.

Comprehensive outlook: Divisions in the Middle East persist, and although the US Fed did not raise rates in July, its overall stance remains hawkish. The fundamental deficit continues, aluminium ingot inventories keep destocking, and in the short term, aluminium prices are expected to consolidate on a strong note.

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.