Mild inflation pullback eases macro anxiety, production resumptions accelerate, and market sentiment turns around

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Macro perspective

The latest US inflation data were released. Data from the US Labour Department showed that the US July unadjusted CPI Y-o-Y growth rate slowed to 3.4 per cent, the core CPI YoY growth rate slowed to 2.5 per cent, seasonally adjusted CPI rose 0.1 per cent M-o-M, and core CPI rose 0.2 per cent M-o-M, all in line with market expectations. After the data release, traders' expectations for a US Fed rate hike in September remained broadly steady.

US President Trump said he was currently “dealing with the Iran issue quietly” and hinted that, rather than launching another large-scale military operation, he preferred to step up economic pressure. Iran is demanding compensation for losses suffered during the military conflicts of the past five months. The US is likewise demanding compensation from Iran and has instructed its representatives to explicitly include this demand in all future negotiations.

Iranian Foreign Minister Araghchi said there are currently no negotiations between Iran and the US, but mediators are still trying to find a way to resume negotiations. The Secretary of Iran's Supreme National Security Council, Zolghadr, said that if the US does not change its behaviour, the Strait of Hormuz will remain closed, and the precondition for reopening the Strait of Hormuz is that the US meets five conditions, including a permanent halt to military operations against Iran. National Bureau of Statistics (NBS): July consumer prices rose 0.5 per cent YoY.

Fundamentals

Supply side, over the past week, China's weekly aluminium production was basically stable, and the proportion of liquid aluminium rose 0.11 percentage point W-o-W. Outside China, as production ramp-up at newly commissioned projects and production resumptions continue to advance, aluminium supply is expected to keep rising. However, the global aluminium ingot destocking trend remains unchanged in the short term.

Demand side, the downstream processing industry was in the traditional consumption off-season, and overall operating rates were under pressure. Aluminium billet processing fees pulled back, weakening replacement demand for aluminium ingot. Inventory side, this week, China's aluminium social inventory continued its destocking trend. As of Thursday this week, China's aluminium ingot social inventory stood at 898,000 tonnes, down 19,000 tonnes from Monday this week and down 35,000  tonnes from Thursday last week. In the short term, aluminium ingot inventory is expected to continue destocking, but destocking is expected to slow in the second half of the month.

Overseas supply side, UAE EGA's semi-annual results report disclosed the production resumption progress at the Al Taweelah aluminium plant, which was shut down after an attack on March 28. 18 per cent of the plant's 1,262 pots have been restarted, and production is expected to recover to pre-incident levels in Q1 2027. The alumina refinery's H1 2026 production fell significantly YoY, and its capacity recovered to 50 per cent of pre-incident levels in early July.

Overall, on the macro front, US July CPI and core CPI Y-o-Y growth rates slowed to 3.4 per cent and 2.5 per cent, respectively, both in line with market expectations. The mild pullback in inflation eased market concerns about more aggressive US Fed rate hikes, short-term momentum for a surge in US Treasury yields weakened, and macro liquidity pressure eased somewhat.

Along with lingering disagreements over the Middle East situation, this provided temporary support for aluminium prices. On the fundamentals side, aluminium ingot inventories continued to destock, but there are expectations for a slowdown in the second half of the month. On the supply side outside China, UAE's EGA disclosed the production resumption progress at the AlTaweelah aluminium smelter.

Currently, 18 per cent of the plant's 1,262 pots have already been restarted, and the pace of production resumption has been faster than the market previously expected. The supply tightness premium priced in earlier now faces giveback pressure. Although the macro recovery and continued destocking in the first half of August supported stronger aluminium prices, market sentiment has turned, and aluminium prices are expected to trade under pressure at high levels in the short term, with upside room capped to some extent by production resumption expectations.

Next week, the most-traded SHFE aluminium contract is expected to trade in a range of RMB 23,600–24,450 per tonnes; LME aluminium is expected to trade in a range of USD 3,180–USD 3,330 per  tonnes. Going forward, close attention should be paid to production resumption progress in the Middle East and developments in commissioning plans for new projects.

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.