Middle East tensions persist, short-term aluminium prices hold up well

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Futures: SHFE aluminium closed at RMB 23,950 per tonne, edged down 0.13 per cent, with the price above the MA5 (around 24,000) and all short- to medium-term moving averages (MA10=23,696.5, MA30=23,252.17, MA60=23,719.67), the moving average system in bullish alignment, the medium-term uptrend intact. The MACD DIF at 140.3, DEA at 45.33, maintaining a golden cross above the zero line, the histogram expanding to 189.94, bullish momentum continues to strengthen.

Trading volume shrank to 49,000 contracts, wait-and-see sentiment strong near highs. Suggested core trading range for SHFE aluminium: 23,700-24,300. LME aluminium closed at USD 3,280 per tonne, up 0.31 per cent, price above all key moving averages (MA5=3,256.1, MA10=3,222.05, MA30=3,173.32, MA60=3,033.3), the moving average system in bullish alignment, the medium-term uptrend solid.

The MACD DIF at -5.28, DEA at -14.87, the negative histogram turned positive to 40.3, forming a low-level golden cross signal, indicating exhaustion of bearish momentum and initiation of bullish momentum. Suggested core trading range for LME aluminium: 3,250-3,320.

Macro front: US President Trump stated he is "playing down" the Iran issue, hinting that he prefers increasing economic pressure rather than launching another large-scale military operation. Iranian Foreign Minister Araghchi stated there are no negotiations between Iran and the US at present, but mediators are still trying to find a path to resume talks.

Secretary of Iran’s Supreme National Security Council Zolghadr stated if the US does not change its behaviour, the Strait of Hormuz will remain closed, and the precondition for reopening it is that the US meets five conditions, including a permanent halt to military operations against Iran.

Fundamentals: Supply side, this week, China's aluminium weekly production was basically stable, with the proportion of liquid aluminium up 0.19 percentage points W-o-W; Outside China, with the continued production ramp-up of new projects and production resumptions, aluminium supply is expected to keep rising.

However, the destocking trend of global aluminium ingot remains unchanged in the short term. Demand side, the downstream processing industry is in the traditional consumption off-season, overall operations under pressure; aluminium billet processing fees pulled back, substitution demand for aluminium ingot weakened. Inventory side, this week, China's aluminium social inventory continued its destocking trend.

As of this Monday, China's aluminium ingot social inventory destocked 16,000 tonnes from last Thursday to 917,000 tonnes, and destocked 41,000 tonnes from last Monday, with the destocking pace further narrowing; meanwhile, aluminium billet inventory saw a slight buildup, with an inventory buildup of 4,000 tonnes W-o-W. Aluminium ingot inventory is expected to continue the destocking trend in the short term.

Primary aluminium market: During the morning session, the SHFE aluminium 2608 contract continued to rise significantly in its centre compared to yesterday, but with ongoing destocking and a widening Contango structure, most suppliers were unwilling to lower prices. The actual transaction price for A00 aluminium ingots was in the range of RMB 08-40 to 08-20 per tonne.

Today, the shipment sentiment index in east China was 3.15, up 0.02 M-o-M; the purchasing sentiment index was 3.09, up 0.13 M-o-M. Aluminium futures continued to rise, and with the Friday stockpiling cycle, buying sentiment among downstream processing enterprises in the central China market remained low.

Trading firms engaging in both spot and futures market were purchasing heavily, and under large discounts, major suppliers' willingness to hold prices firm and hold back from selling became increasingly evident, driving a steady rise in market premiums. Eventually, the actual transaction price range in the central China market centred around a discount of RMB 120-160 per tonne against the SHFE aluminium 08 contract.

Today, the shipment sentiment index in the central China market was 3.01, up 0.04 M-o-M; the purchasing sentiment index was 2.97, up 0.01 M-o-M. Today, futures continued to surge, and spot aluminium in south China showed strong resilience. Arrivals were already tight, and the destocking trend remained stable, continuing to support large-scale suppliers in being bullish about the outlook, holding prices firm and holding back from selling, with some even actively trying to raise prices. Even without buying response, they firmly refused to adjust prices.

Mainstream quotations were at a premium of RMB 0~+10 per tonne, with tight circulation in some areas. On the demand side, downstream users initially found it difficult to accept price that had shot up and only made minimum just-in-time procurement.

However, with limited circulation, traders actively entered the market to purchase at non-premium levels, which was enough to absorb the supply. The supply-demand pattern was tight, with overall transactions stable and improving. Spot transaction prices were concentrated at a premium of RMB 65 per tonne to RMB 105 per tonne against the SHFE aluminium 2608 contract.

Aluminium scrap: Today, SMM A00 spot aluminium price closed at RMB 23,980 per tonne, up another RMB 180 per tonne from the previous trading day. China's aluminium scrap market prices remained mainly stable and cautious, with only some varieties in certain east China regions following the uptick slightly.

In terms of price differences, on August 7, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was approximately RMB 2,310 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was approximately RMB 1,110 per tonne.

As primary aluminium prices continued to rise, aluminium scrap lacked the momentum to follow, causing the price difference to widen again. The downstream demand for secondary aluminium alloy weakened marginally, and combined with high inventories of wrought aluminium alloy scrap such as doors and windows in Henan and other regions, the price transmission mechanism for aluminium scrap was hindered, with a clear lack of momentum to follow the uptick.

Affected by the traditional consumption off-season, the operating rate of downstream cast aluminium alloy enterprises continued to decline, with order volumes shrinking, and the aluminium scrap market lacking substantial support. Looking ahead, the supply-demand mismatch pattern is unlikely to reverse in the short term. Scrap utilization enterprises are likely to maintain strategies of purchasing as needed and low-inventory operations.

The market trading atmosphere is hard to improve substantially. It is expected that next week, the shredded aluminium tense scrap price based on aluminium content will be dragged down by stagnating raw material prices and weak downstream demand, operating under pressure overall, with the mainstream price range expected to centre around RMB 20,200-20,800 per tonne.

Secondary aluminium alloy: Spot market: The ADC12 market quotations were mainly seen consolidating on a strong note. SMM ADC12 prices edged up by RMB 50 per tonne. Primary aluminium prices continued to provide cost support, and enterprises maintained the willingness to hold prices firm.

However, end-use demand remained persistently weak, and downstream procurement pace was relatively cautious, limiting market transaction improvement. Prices lacked downward momentum and faced demand-side resistance for upward transmission. In the short term, the ADC12 market is expected to continue a consolidated operation pattern, where cost support and demand suppression will coexist.

General outlook: Divergence persisted in the Middle East situation. Although the US Fed did not raise interest rates in July, its overall stance remained hawkish. The fundamental gap continued, and aluminium ingot inventory was destocking consistently. 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.