Middle East situation adds new uncertainties, aluminium prices continue in the doldrums

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Futures: SHFE aluminium daytime session closed at RMB 22,610 per tonne, edging up 0.11 per cent. The price is far below all key moving averages (MA5 ≈ 22,876, MA10 ≈ 23,323.5, MA30 = 24,021.67, MA60 = 24,425.75), with the moving average system in a bearish alignment and diverging, keeping the weak pattern unchanged. The MACD indicator shows DIF = -451.31 and DEA = -317.07, with a bearish crossover pointing downward. The negative histogram narrowed to -268.49 (previous day -273.16), indicating bearish momentum has slightly weakened but remains high. Trading volume shrank to 114,500 lots, and selling pressure in the market has eased somewhat. The suggested core trading range for SHFE aluminium is 22,400-22,800. LME aluminium closed at USD 3,095 per tonne, down 0.32 per cent, with intraday fluctuations between 3,094.5 and 3,103. The price is far below all key moving averages (MA5 = 3,136.4, MA10 = 3,220.75, MA30 = 3,471.8, MA60 = 3,514.03), and the moving averages are in a bearish alignment, extending the weakness. The MACD indicator shows DIF = -124.67 and DEA = -92.37, with a bearish crossover pointing downward. The negative histogram narrowed to -64.59 (previous day -72.07), and bearish momentum has slightly weakened. The suggested core trading range for LME aluminium is 3,080-3,130.

Macro front: New uncertainties emerged in the Middle East. Iranian Foreign Ministry spokesperson Baghaei stated that Iran has "basically no plan to hold meetings at any level with the US side in the coming days." Baghaei noted the activities likely to take place in Doha on July 1 will mainly focus on the implementation of the memorandum of understanding's terms. Qatari Foreign Ministry spokesperson Ansari said the US presidential envoy and Trump's son-in-law visited Qatar, but this did not include direct negotiations with the Iranian side.

Fundamentals: Supply side, according to SMM data, China's aluminium production rebounded W-o-W this week, mainly driven by production ramp-up at newly commissioned capacity and resumption of idle capacity. Last week, the proportion of liquid aluminium rose 0.2 percentage points W-o-W, and casting ingot volume further declined. Outside China, previously high prices stimulated accelerated commissioning of new projects, and as these new projects are energised and ramp up production, operating aluminium capacity outside China is expected to further rebound M-o-M. Inventory side, this week aluminium inventory continued its smooth destocking trend. As of this Monday, China's aluminium ingot social inventory decreased by 40,000 tonnes from last Thursday and by 82,000 tonnes from last Monday. The weakening aluminium price prompted a recovery in downstream buying sentiment, driving the destocking of aluminium ingots. Export side, last week the SHFE/LME price ratio rapidly recovered, sharply narrowing the profit margin that had been driving large volumes of aluminium semis exports. New orders for some segments have already declined, and as orders on hand are gradually fulfilled, aluminium semis exports face the risk of reduction if export margins cannot recover later.

Primary aluminium market: In early trading, the SHFE aluminium 2606 contract's center ran below the level seen at the same time the previous trading day. Weighed down by the falling aluminium prices, some sellers held back from selling yesterday, and overall willingness to sell weakened somewhat. Market buying sentiment was sluggish, and overall buying sentiment in the market declined somewhat yesterday. Mainstream market transactions were at parity to a premium of RMB 10 per tonne against the SHFE aluminium July contract. Yesterday, the east China market selling sentiment index closed at 2.88, down 0.29 from the previous day; the buying sentiment index was 2.76, down 0.10 from the previous day. Yesterday, SHFE aluminium futures plunged, and the trading atmosphere in the central China market remained sluggish. Downstream processing enterprises exhibited a notable sentiment of rushing to buy amid continuous price rise and holding back amid price downturn, mostly staying on the sidelines. Moreover, as the last trading day of June, many processing plants took inventory and digested inventories, with low buying interest. The sharp drop in absolute prices also reduced suppliers' willingness to sell. Ultimately, actual transaction prices in the central China market centred around a discount of RMB 20-40 per tonne against the SHFE aluminium July contract. Yesterday, the central China market selling sentiment index was 2.87, down 0.03 from the previous day; the buying sentiment index was 2.11, down 0.02 from the previous day.

Aluminium scrap: Yesterday, SMM A00 spot aluminium closed at RMB 22,500 per tonne, down RMB 440 per tonne from the previous trading day, and the overall scrap aluminium market followed the decline. By product category, bare bright aluminium wire and mixed aluminium extrusion scrap free of paint dropped by as much as RMB 400 per tonne, old scrap fell by RMB 300 per tonne, and aluminium tense scrap generally fell by RMB 200 per tonne. As for the price spread, on June 30, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan stood at RMB 1,780 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 670 per tonne. The supply side remained tight, and supervision of the reverse invoicing policy tightened further. Small and medium-sized scrap utilisation enterprises in Anhui, Jiangxi, Hubei, and other regions continued to reduce or halt production, pushing up the scarcity of compliant duty-paid aluminium scrap. On the import side, due to a 1-3 month lag in shipping schedules, port arrivals of aluminium scrap are expected to stay at low levels from June to August. Additionally, the UAE imposed a 4-month temporary export ban on aluminium scrap starting June 3, further intensifying expectations of tighter supply of high-quality scrap in Asia. This week, the aluminium scrap market is expected to remain in the doldrums at high levels, but with limited downside room. The mainstream range of shredded aluminium tense scrap (priced based on aluminium content) is expected to operate between RMB 19,300 and 19,900 per tonne (tax-exclusive). Constraints from the reverse invoicing policy and the delayed contraction in imported aluminium scrap will continue to form bottom support, while weak off-season demand and low downstream operating rates will cap upside room. Going forward, attention should be paid to the pace of policy compliance, US-Iran peace talks and the progress of navigation in the Strait of Hormuz, the pace of overseas aluminium scrap arrivals, and changes in downstream operating rates in China.

Secondary aluminium alloy: Yesterday, ADC12 market offers continued to decline overall, with SMM ADC12 price falling RMB 150 per tonne from the previous day to RMB 23,800 per tonne. SHFE aluminium and cast aluminium alloy futures weakened, suppressing spot offers, with enterprises following suit with price cuts. Meanwhile, the decline in procurement costs for aluminium scrap was relatively limited, and together with tight tax invoices and persistent spot resource tightness, cost support remained in place, leading to pronounced sentiment of holding back from selling at low prices. Overall, although ADC12 prices have pulled back dragged by futures, cost support and spot tightness have limited the decline, while divergence in market quotes persisted. In the near term, ADC12 prices are expected to mainly consolidate on a subdued note, but the downside room is relatively limited.

Summary of aluminium market trends: The dispute over control of the Strait of Hormuz continues, and uncertainty remains over the resumption of transit through the strait. The Fed's hawkish pivot bolstered the US dollar index, suppressing nonferrous metal prices. Under macro headwinds, aluminium prices in and outside China declined. In the short term, bearish factors dominate, and aluminium prices are expected to remain in the doldrums.

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.