Macro headwinds dominate futures, Shanghai and LME aluminium both remain in the doldrums

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Futures: The most-traded SHFE aluminium 2608 contract closed at RMB 22,935 per tonne, down RMB 40 or 0.17 per cent from the previous settlement price. It opened at RMB 22,950 per tonne and fluctuated between RMB 22,810 and 23,030 per tonne.

The price is trading below the MA5 (23,389.00), MA10 (23,726.50), MA30 (24,192.17), and MA60 (24,529.08) moving averages. The short- and medium-term moving averages are in a bearish alignment and gradually pressing lower, highlighting a structure notably in the doldrums, with the various timeframe moving averages above forming layers of resistance.

The MACD indicator's DIF (-345.5331) is below the DEA (-223.1560), and the MACD green bar reading is -244.7541, indicating bearish momentum continues to be released. The recommended trading range for SHFE aluminium is RMB 22,500-23,300 per tonne. The LME aluminium 3M contract closed at USD 3,174.5 per tonne, down 0.35 per cent.

The price is trading below the MA5 (3,218.90), MA10 (3,308.40), MA30 (3,518.28), and MA60 (3,532.48) moving averages, with short- and medium-term moving averages in a bearish alignment and gradually pressing lower, and the overall structure notably in the doldrums, with moving averages above providing notable resistance.

The MACD indicator's DIF (-104.5279) is below the DEA (-66.2193), with the MACD green bar at -76.6172, as bearish momentum continues to be released, signalling persistent weakness. The recommended trading range for LME aluminium is USD 3,100-3,200 per tonne.

Macro front: Omani Foreign Minister Badr stated that future arrangements concerning the Strait of Hormuz will not involve any transit fees. Meanwhile, Iran estimates that if services such as security and environmental fees are charged for the Strait of Hormuz, it would generate USD 40 billion in annual revenue for the relevant countries.

The Islamic Revolutionary Guard Corps Navy stated that vessels transiting the Strait of Hormuz must coordinate in advance, and violators "will be dealt with." S&P Global Energy reported that the daily average Strait of Hormuz transits in June had recovered to about 57 per cent of pre-conflict levels.

New York Fed President John Williams said interest rates are in a good place to bring inflation back to the central bank's target. Williams expects inflation to slow to 3.5 per cent by year-end, then continue along a "smooth path" toward 2 per cent, reaching the target in 2028.

Fundamentals: Supply side, according to SMM data, China's aluminium production rebounded W-o-W this week, mainly driven by the production ramp-up of newly commissioned capacity and the resumption of idle capacity. The proportion of liquid aluminium rose 0.2 percentage points W-o-W, while casting ingot output further declined.

Overseas, earlier high prices spurred accelerated commissioning of new projects. As new projects are energized and ramp up production, operating aluminium capacity outside China is expected to increase further W-o-W. On the inventory front, aluminium destocking continued smoothly this week. As of Thursday, China's social inventory of aluminium ingot had fallen 50,000 tonnes W-o-W and 37,000 tonnes from Monday.

Weakening aluminium prices lifted downstream buying sentiment, helping to drive the destocking. On the export side, the SHFE/LME price ratio recovered sharply this week, rebounding to 7.29 as of June 25, up 12.2 per cent from the prior low of 6.5. Import losses narrowed to around RMB 3,400 per tonne, nearly 45 per cent narrower than the previous peak loss of RMB 7,604 per tonne.

As a result, the profit margin that had spurred substantial aluminium semis exports contracted rapidly, and new orders in some segments have declined. As orders on hand are gradually fulfilled, exports of aluminium semis face downside risks if export margins fail to recover.

Primary aluminium market: In early trading, the centre of SHFE aluminium 2606 contract prices was well below the same period in the prior trading day. As prices fell to the recent low, overall buying sentiment improved M-o-M from yesterday, lifting transaction prices.

Mainstream transactions were at a discount of RMB 20-40 per tonne against the SHFE aluminium 07 contract. In east China, the willingness-to-sell sentiment index stood at 2.90, down 0.08 W-o-W; the purchasing sentiment index stood at 3.16, up 0.34 W-o-W.

SHFE aluminium continued to tumble. In central China, suppliers showed low willingness to sell, and traders tended to offer substantial volumes of spot warrants with limited intention to hold prices firm. Downstream processing enterprises displayed weak buying sentiment, making only limited just-in-time procurement, mainly of warrants, with few spot transactions.

The central China market eventually saw transaction prices centred around a discount of RMB 20-50 per tonne against the SHFE aluminium 07 contract. The willingness-to-sell sentiment index in central China was 2.89, down 0.04 W-o-W; the purchasing sentiment index was 2.14, down 0.06 W-o-W.

Aluminium scrap: SMM A00 spot aluminium closed at RMB 22,850 per tonne yesterday, plunging RMB 620 per tonne M-o-M from the prior trading day. Aluminum scrap moved lower in sympathy but limited losses due to significant cost support.

On the price difference front, on June 25, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan stood at RMB 2,137 per tonne, while that between A00 aluminium and shredded aluminium tense scrap stood at RMB 1,160 per tonne.

Both narrowed over the week amid sustained resistance from aluminium scrap prices and a rising tax burden on enterprises, with tense scrap declining less than wrought aluminium scrap. Supply remained tight, and scrutiny of reverse-invoicing policies intensified. Production cuts and halts spread among medium- and small-sized scrap utilization enterprises in Anhui, Jiangxi, and Hubei, increasing the scarcity of compliant, invoiced aluminium scrap.

On the import side, China's aluminium scrap imports totalled 152,000 tonnes in May, down 10.88 per cent M-o-M and 4.81 per cent Y-o-Y. Given the 1-3 month shipping lag, port arrivals from June to August are expected to remain low. In addition, the UAE imposed a four-month temporary ban on aluminium scrap exports starting from June 3, further intensifying the expectation of tightening supply of high-quality scrap in the Asian region. The demand side shows clear off-season characteristics, with enterprises having maintained strategies of purchasing as needed and keeping low inventory.

The aluminium scrap market is expected to remain in the doldrums at high levels next week, but with limited downside room; the mainstream price range for shredded aluminium tense scrap (priced based on aluminium content) is expected to run at RMB 19,300—19,900 per tonne (tax-excluded).

The reverse invoicing policy constraints and the lagged contraction in aluminium scrap imports continue to provide bottom support, but weak off-season demand and low downstream operating rates are capping the upside room. Future attention should be paid to the pace of policy compliance, progress in US-Iran peace talks and the Strait of Hormuz shipping, the arrival pace of aluminium scrap from outside China, and changes in downstream operating rates within China.

Secondary aluminium alloy: Yesterday, mainstream ADC12 enterprise quotes were generally reduced by RMB 100—200 per tonne, with the SMM ADC12 price dropping by RMB 150 per tonne from the previous day to RMB 23,850 per tonne. Under the continuous price decline, downstream client purchasing enthusiasm did not significantly improve; downstream purchases remained primarily just-in-time procurement, with strong wait-and-see sentiment and insufficient restocking willingness.

Meanwhile, aluminium scrap prices were relatively firm, especially as compliant raw material supply remained tight; the price decline further squeezed aluminium scrap supplier profits, leading to increased reluctance to sell and affecting raw material circulation to some extent. Under the ongoing constraints of the "reverse invoicing" policy, industry compliance cost pressure has not yet been alleviated, and enterprises still face significant production and operational pressure.

In the short term, the market will still be dominated by cautious wait-and-see and just-in-time procurement, with future attention needed on the aluminium price trend, changes in aluminium scrap supply, and downstream order recovery.

Aluminium market summary: The US Fed's hawkish pivot boosted the US dollar index, weighing on non-ferrous metal prices. Geopolitical tensions in the Middle East showed some volatility but with no signs of deterioration.  Under macro headwinds, aluminium prices fell in and outside China. In the short term, bearish factors are dominant, and aluminium prices are expected to remain in the doldrums. Continuous monitoring is needed on Middle East production resumption news, overseas aluminium ingot inventory trends, and macro news fluctuations.

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.