New highs in US treasury yields and escalating geopolitical tensions disrupt the macro landscape; SHFE and LME aluminium prices diverge

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Futures: The most-traded SHFE aluminium contract opened at RMB 24,015 per tonne in the night session on August 17, with a high of RMB 24,015 per tonne and a low of RMB 23,870 per tonne, and settled at RMB 23,935 per tonne, down 0.33 per cent from the previous close. Prices rebounded to test the MA5 and MA10, and then pulled back under pressure, consolidating and closing with a small bearish candlestick. The MA20 formed short-term resistance, while the MA40 and MA60 provided support below.

During the session, open interest fell sharply, indicating long liquidation. Technically, the 4-hour MACD maintained a bearish crossover, with the green histogram expanding, and bears dominating in the short term. LME aluminium opened at USD 3,245 per tonne on August 17, with a high of USD 3,286 per tonne and a low of USD 3,245 per tonne, and settled at USD 3,259.5 per tonne, up 0.45 per cent from the previous close.

After pulling back to the MA20 (3,245.43) and finding support, prices bottomed out and closed with a small bullish candlestick, regaining the short-term moving averages of MA5 and MA10, while the MA40 and MA60 remained above prices and continued to cap gains. Trading volume shrank on the day, while open interest edged up, showing characteristics of long additions. Technically, on the daily chart, MACD DIFF (15.03) ran above DEA (7.33), the red histogram narrowed slightly, and bullish momentum weakened at the margin.

Macro front: On Monday local time, US Treasury yields broadly moved higher. The 30-year Treasury yield, typically more sensitive to geopolitical events, rose more than 4 bps to 5.311 per cent, the highest level since June 2007. According to CCTV News, on August 17 local time, US President Trump explicitly stated that he was not seeking to extend the memorandum of understanding with Iran, and said there was “no timetable” for resolving the Iran issue and that he was “not in a hurry.”

Iran issued a tough response in tandem. US Energy Secretary Wright said the US would “fight a long war” with Iran, and Treasury Secretary Bessent hinted that new economic sanctions were about to be introduced.

According to CME FedWatch: the probability that the US Fed would keep rates unchanged through September was 65 per cent, and the probability of cumulative rate hikes of 25 bps was 35 per cent. The probability that the US Fed would keep rates unchanged through October was 51.4 per cent, the probability of cumulative rate hikes of 25 bps was 41.3 per cent, and the probability of cumulative rate hikes of 50 bps was 7.4 per cent.

Fundamentals: With the off-season effect yet to fade and Asian demand showing no clear improvement, ex-China aluminium ingot premiums were likely to remain in the doldrums, and Japan’s MJP premium still had downside room. On inventories, on Monday, aluminium ingot inventory in major consumption areas fell 500 tonnes M-o-M, with only Gongyi posting an inventory buildup.

Primary aluminium market: In early trading, the SHFE aluminium 2608 contract continued to trade at elevated levels. Today was the last trading day for the SHFE aluminium  2608 contract, and the price spread between near-month SHFE aluminium  contracts was contango 20 –contango RMB 50 per tonne. Today, SHFE aluminium spot premiums were mainly traded in the range of RMB 09-10 per tonne to RMB 09+10 per tonne. Today, the east China market shipment sentiment index was 3.15, up 0.01 M-o-M; the purchasing sentiment index was 3.4, up 0.06 M-o-M.

Today, aluminium futures rebounded slightly again. As it was the first day of the week, downstream processing enterprises in the central China market showed low stockpiling sentiment. Overall purchasing sentiment declined W-o-W from last Friday, and overall market trading was sluggish. Ultimately, the actual transaction price range in the central China market hovered at a discount of RMB 90-110 per tonne against the SHFE aluminium 09 contract.

Today, the central China market shipment sentiment index was 3.09, unchanged M-o-M; the purchasing sentiment index was 2.9, down 0.07 M-o-M. Today, aluminium prices stopped falling and surged, and the spot market showed strong resilience. In the morning, a sharp rebound in the outright price prompted some one-way profit-taking at higher levels, with proactive price cuts to sell weighing somewhat on the market.

However, on the one hand, the spot-futures price spread had weakened to a relatively low level, while ongoing destocking in the physical market prompted most suppliers to firmly hold prices firm and sell slowly; actual circulation gradually became controllable and tightened slightly. On the other hand, there were some instances of rush to buy amid continuous price rise and make just-in-time procurement on the downstream side.

Traders’ attempts to push for lower prices when purchasing failed to fully meet demand, and they gradually accepted buying cargo with firmer prices. Quotes stabilised and edged up within -10 to +10, and transactions improved.

Aluminium scrap: Today, the SMM A00 spot aluminium price closed at RMB 24,070 per tonne, up RMB 200 per tonne M-o-M from the previous trading day, and aluminium scrap prices in China rose in tandem. Against the backdrop of continuously rising primary aluminium prices, aluminium scrap fluctuated within a relatively limited range, and the price transmission mechanism was impeded, mainly constrained by two factors: first, marginal weakening in demand for secondary aluminium alloy downstream.

High-temperature holidays, coupled with the traditional consumption off-season, led to a continued decline in the operating rate of cast aluminium  alloy enterprises and a contraction in order volumes; second, high inventories of wrought aluminium  alloy scrap raw materials for doors and windows in Henan and other regions weakened the upside elasticity of aluminium  scrap prices. In addition, supply-side constraints from the “reverse invoicing” policy continued, and the scarcity of compliant, invoiced aluminium scrap provided a floor for aluminium scrap prices.

As the high-temperature holiday had not yet ended, downstream cast aluminium alloy enterprises kept operating rates at low levels, and order recovery still required time. Scrap utilisation enterprises were highly likely to continue purchasing as needed and maintaining low inventories, and a concentrated restocking rally still needed to wait.

Notably, the price difference between A00 aluminium and shredded aluminium tense scrap had gradually widened, and aluminium scrap’s economic advantage relative to primary aluminium recovered somewhat. It was expected that in the short term, the aluminium scrap market would continue to move sideways at elevated levels, with weak end-use demand remaining the core factor suppressing prices.

Secondary aluminium alloy: Spot market: Today, ADC12 market quotes were generally firm, with most enterprises raising prices by RMB 100 per tonne, mainly supported by the rebound in futures and elevated raw material costs; some enterprises also sought to recoup earlier declines. However, end-use demand is still in the off-season, with procurement mainly driven by rigid demand, and upward momentum on the spot side is relatively limited. Overall, the market continues to show a pattern of strong cost support while demand constrains upside room.

Comprehensive outlook: On the macro front, US July inflation data pulled back as expected, and July retail sales data weakened sharply. A string of weaker-than-expected economic data significantly lowered market expectations for US Fed interest rate hikes in September, with the probability of a September hike falling markedly, and the market beginning to price in expectations for the terminal rate.

The US dollar index was under pressure and weakened, providing macro support for LME metals. The fundamental supply gap persisted, aluminium ingot inventory continued to draw down, and on the outside China supply side, UAE’s EGA disclosed progress on production resumptions at the Al Taweelah aluminium smelter.

Currently, 18 per cent of the plant’s 1,262 pots have restarted, with the pace of resumptions accelerating versus the market’s previous expectations, and the previously priced-in tight-supply premium facing pressure to pull back. In the short term, aluminium prices are expected to consolidate on a strong note, but upside room will be somewhat capped by expectations for production resumptions.

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.