Macro tailwinds coexists with inventory pressure, limiting upside room for aluminium prices

Stock image for referential purposes only

Futures: The most-traded SHFE aluminium 2606 contract closed at RMB 24,700 per tonne, down 0.70 per cent. The price was near MA5 (24,668.00), MA10 (24,594.00), and MA30 (24,805.33), and above MA60 (24,581.00). Short-term moving average support was moderate, and the price was currently moving sideways within the moving average range. The MACD indicator DIF (-19.5253) was below DEA (-2.5645), with the histogram in negative territory (-33.9216), indicating some release of bearish momentum. The suggested core trading range for SHFE aluminium is RMB 24,300-25,000 per tonne. LME aluminium 3M closed at USD 3,651.5 per tonne, down 0.19 per cent, with the price pulling back slightly. The price was above MA5 (3,623.40), MA10 (3,572.45), MA30 (3,553.87), and also above MA60 (3,416.88). Short-, medium-, and long-term moving averages continued to provide support, with the overall trend remaining on the stronger side. The MACD indicator DIF (43.4942) was above DEA (38.2380), with the histogram in positive territory (10.5124), indicating that upward momentum was still being released. The LME aluminium trading range is USD 3,620-3,700 per tonne.

Macro front: President Xi Jinping held talks with US President Trump, who was on a state visit to China. The two sides established "a constructive and strategically stable China-US relationship" as the new positioning for bilateral relations, providing strategic guidance for China-US relations over the next three years and beyond. Premier Li Qiang met with US business representatives accompanying President Trump on his visit to China. Li Qiang stated that a stable and open policy environment is a long-standing and unchanged commitment of the Chinese government. He expressed hope that more US-invested enterprises would continue to deepen their presence in the Chinese market and serve as a bridge for communication and dialogue between the two countries, promoting mutual trust and friendship between China and the US. Kansas City Fed President Schmid stated that although the US economy had demonstrated "remarkable resilience" in the face of multiple challenges, inflation remained the biggest risk facing the US economy, while the labour market overall remained stable.

Fundamentals: Ex-China, amid Middle East conflicts, aluminium outside China exhibited a rigid supply gap, which drove continued destocking of LME inventory. As of this Wednesday, LME inventory decreased by approximately 11,700 tonnes W-o-W to 346,500 tonnes. The LME aluminium Cash-3M premiums structure continued to deepen, with Wednesday's premiums rebounding USD 24.02 per tonnes W-o-W to USD 76.12 per tonne. China side, initial destocking of domestic aluminium ingot inventory provided a preliminary boost to market sentiment, but inventory remained at elevated levels, continuing to exert pressure on aluminium prices. As of this Thursday, regional social inventory of aluminium ingots stood at 1.428 million tonnes, a destocking of 13,000 tonnes compared to last Friday.

Primary aluminium market: Yesterday morning, the SHFE aluminium 2606 contract fluctuated upward, with the overall price centre moving higher compared to the previous trading day. Yesterday, market procurement sentiment remained weak, while seller shipment sentiment rose due to higher aluminium prices. Mainstream spot cargo quotes ranged from SMM A00 RMB -10 per tonne to RMB -20 per tonne. Yesterday, the east China market shipment sentiment index was 3, up 0.04 W-o-W; the procurement sentiment index was 2.8, down 0.06 W-o-W. Aluminum prices rose significantly during the Wednesday night session, and the central China market's initial quoted premiums were low yesterday. Although prices continued to decline after the opening, transaction price premiums remained low and showed a continued downward trend, as insufficient invoice quotas and high aluminium prices suppressed downstream procurement sentiment. Ultimately, actual transaction prices in the central China market ranged around a discount of 20 to 50 yuan to the central China price. Yesterday, the central China market shipment sentiment index was 2.83, up 0.01 W-o-W; the procurement sentiment index was 2.26, down 0.02 W-o-W.

Aluminium scrap: Yesterday, A00 aluminium prices were raised by RMB 50 per tonne compared to the previous trading day. Aluminum scrap market prices remained generally stable, with some regions' aluminium tense scrap prices holding steady amid wait-and-see sentiment. The mainstream price range for shredded aluminium tense scrap (priced based on aluminium content) hovered around RMB 20,500-21,000 per tonne (tax exclusive). The weekly operating range for imported zorba (Ningbo Port) was raised by RMB 200 per tonne to RMB 21,870-22,070 per tonne (tax inclusive). Regarding the price difference between A00 aluminium and aluminium scrap, on May 14, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was recorded at RMB 2,785 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 2,208 per tonne.

Supply side, policy constraints were significant — strict enforcement of reverse invoicing led to a shortage of compliant invoice sources, pushing up indusYtry costs, with scrapyards generally holding back from selling and holding prices firm. According to survey feedback, warehouse inflows at mainstream scrapyards in east China declined Y-o-Y, showing a slight inventory buildup trend, while aluminium tense scrap inventory pulled back somewhat. On the imported aluminium scrap front, persistently high LME prices creating an inverted import margin made import traders more cautious, and subsequent imports are expected to pull back. Demand side, the market entered the traditional consumption off-season. Secondary aluminium enterprises' operating rates pulled back slightly.

Tax enforcement pressure combined with low-price difficulties caused some enterprises to reduce or halt production, further weakening market demand. Aluminum tense scrap maintained a low-inventory just-in-time procurement model. Although wrought aluminium alloy scrap received slight support from flat-rolled product operating rates, the overall momentum was limited, with sluggish market transactions and strong wait-and-see sentiment. Next week, the aluminium scrap market is expected to continue fluctuating at highs, with the mainstream shredded aluminium tense scrap (priced based on aluminium content) range holding at RMB 20,500-21,300 per tonne (tax exclusive).

Supply side, the tightening fiscal and tax regulatory stance is unlikely to ease in the short term, and the shortage of invoice sources along with expectations of reduced imports will continue to provide bottom support for aluminium scrap prices, with the market pattern of scrapyards holding prices firm and holding back from selling persisting. Demand side, the off-season effect continued to ferment, with insufficient incremental end-user orders. Secondary aluminium enterprises showed a trend of production cuts, and downstream procurement remained dominated by small-lot rigid-demand restocking, making it difficult for concentrated stockpiling to emerge. The secondary aluminium market is expected to continue its pattern of weak supply and demand.

Secondary aluminium alloy: Spot market, the ADC12 market overall remained stable yesterday. Most enterprises maintained stable prices with strong wait-and-see sentiment. However, against the backdrop of tightening reverse invoicing policies, invoiced supplies continued to be tight, and some enterprises had begun to slightly raise their quoted prices. Meanwhile, affected by invoice shortages, some manufacturers showed signs of production cuts, and market circulation was expected to contract, providing certain support for prices. However, demand side, downstream orders remained weak, with procurement driven mainly by rigid demand, constraining upside room for prices. Against this backdrop, although the cost side stayed high and supply tightened marginally, ADC12 prices still possessed certain downside resistance in the short term, but upside room was limited, and the market was expected to continue moving sideways with a slightly firm consolidation pattern.

Aluminium market summary: Currently, positive macro front factors were released in a concentrated manner, the global rigid aluminium supply gap was confirmed, and coupled with initial destocking of China's aluminium ingot inventory, multiple positive factors provided support for aluminium prices. However, inventory at high levels in China remained the core factor suppressing significant price rallies. In addition, weak spot market transaction performance, combined with rising expectations for US Fed interest rate hikes within the year, further limited upside room for aluminium prices. Going forward, attention should be paid to whether China's aluminium ingot inventory can maintain sustained destocking to alleviate the pressure that inventory at high levels exerts on 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.