Risk of full-scale war between the US and Iran climbs, short-term upward drivers for aluminium prices strengthen

Stock image for referential purposes only

Futures: The SHFE aluminium daytime session closed at RMB 23,185 per tonne, up 0.56 per cent, with the price slightly above the MA5 (23,151.7) and MA10 (23,148.5) but still below the MA30 (23,329.33) and MA60 (23,960). Short-term moving averages provided support, while medium-term moving averages remained bearish. The MACD indicator showed DIF at -167.78 and DEA at -240.52, maintaining a golden cross. The histogram rebounded to 145.48 (from 129.39 the previous day), indicating that bullish momentum has recovered somewhat but remains limited.

Trading volume shrank sharply to 49,200 lots, reflecting low market participation. The SHFE aluminium core trading range is recommended at 23,000-23,500. LME aluminium closed at USD 3,169.5 per tonne, up 0.25 per cent, with the price slightly above the MA5 (3,162.1) and MA10 (3,164.25) but still well below the MA30 (3,223.38) and MA60 (3,411.38). Short-term moving averages provided support, but medium-term bearish pressure remained evident.

The MACD indicator showed DIF at -55.49 and DEA at -73.32, maintaining a golden cross. The histogram rebounded to 35.65 (from 31.66 the previous day), indicating that bullish momentum has slightly strengthened. The LME aluminium core trading range is recommended at 3,150-3,200.

Macro front: Multiple senior US officials have said that US President Donald Trump is expected to decide within the coming days whether to expand military operations against Iran and resume “full combat operations.”

If Trump decides to resume full combat operations against Iran, their intensity and scope would far exceed the strikes recently launched by US forces, and Israel is very likely to participate. US Trade Representative Jamieson Greer hinted in a media interview that the US federal government will soon introduce new tariff policies to replace the 10 per cent global import tariff, which is about to expire.

Greer stated that he cannot provide a specific timeline for the new tariff policy’s rollout, as the policy still needs to be communicated to Congress and other stakeholders before being officially announced.

Fundamentals: Supply side, last week, the proportion of liquid aluminium in China’s aluminium electrolysis rose 0.37 percentage point M-o-M, mainly because aluminium billet processing fees performed well and the share of direct liquid aluminium supply increased, leading to a further contraction in aluminium ingot casting volume.

Outside China, with the ramp-up of new projects and ongoing production resumptions, aluminium supply is expected to continue rising. Overall, however, the short-term trend of global aluminium ingot destocking is expected to be hard to reverse.

Demand side, the downstream processing industry is in the traditional consumption off-season, with divergent sector performance but mainly under pressure. The operating rate of downstream aluminium industry leaders was recorded at 61.3 per cent, down 0.6 percentage point M-o-M. The SHFE/LME aluminium price ratio has recovered, narrowing downstream export profits.

As orders on hand are consumed, the supportive effect of exports on demand is expected to weaken. Inventory side, China's aluminium social inventory extended its destocking trend this week. As of Monday this week, China's aluminium ingot social inventory had destocked by 2,000 tonnes from last Thursday to 1.022 million tonnes, and by 25,000 tonnes from last Monday.

Primary aluminium market: In early trading, the SHFE aluminium 2606 contract's centre was below that of the same period the previous trading day. Affected by the off-season, market purchasing sentiment remained weak; coupled with still ample supply in circulation, the decline in aluminium prices failed to boost purchasing demand and price acceptance.

Mainstream transaction prices were at a discount of RMB 10-20 per tonne against the SHFE aluminium August contract. Today, the east China shipment sentiment index was 3.08, down 0.08 from the previous day; the purchasing sentiment index was 2.90, down 0.02 from the previous day. Today, SHFE aluminium futures weakened significantly compared with the opening price in early trading yesterday, while traders in the central China market raised their offers again.

However, constrained by factors such as low purchase willingness of downstream processing enterprises and the long-term contract monthly average price being lower than current prices, ample spot supply in the market slightly weighed on actual transaction premiums/discounts. Ultimately, actual transaction prices in the central China market were centred around a discount of RMB 110-140 per tonne against the SHFE aluminium August contract. Today, the central China shipment sentiment index was 3.05, up 0.02 from the previous day; the purchasing sentiment index was 3.00, flat from the previous day.

Aluminium scrap: Today, SMM A00 spot aluminium price closed at RMB 23,080 per tonne, down another RMB 110 per tonne from the previous trading day, while the aluminium scrap market remained largely steady. In terms of price differences, on July 21, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 2,021 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 707 per tonne, both still at extremely low levels.

Supply-side constraints continued to intensify; the impact of the reverse invoicing policy deepened further, and the scarcity of compliant invoice-backed aluminium scrap kept rising. On the import side, China's aluminium scrap imports in June 2026 were about 133,000 tonnes, down 16.9 per cent YoY and 12.5 per cent M-o-M, marking the third consecutive monthly decline. Cumulative imports from January to June 2026 were 982,000 tonnes.

As overseas aluminium scrap quotations continued to pull back, orders in Guangdong for importing aluminium scrap from Southeast Asia increased recently compared with earlier periods, and the import window improved further from previous levels. However, new transactions remained mainly concentrated on some low-priced cargoes and long-term cooperation clients, and spot market trading activity was still quite limited.

The aluminium scrap market is expected to continue its high-level sideways consolidation. On the supply side, constraints from the reverse invoicing policy are unlikely to reverse in the short term, and the tightness in invoice-backed aluminium scrap will persist.

On the import side, the combined effect of multiple bearish factors will gradually emerge in the coming months, keeping the replenishment of high-quality overseas scrap at low levels. On the demand side, as the off-season deepens, downstream operating rates remain low, end-user orders are unlikely to show material improvement, and scrap utilisation enterprises continue to purchase as needed, making it difficult for purchasing sentiment to improve significantly.

Secondary aluminium alloy: Spot cargo: Today the ADC12 market remained in the doldrums, with the quotation centre edging down slightly. Fundamental side, the pullback in aluminium prices weakened cost support; meanwhile, the off-season effect continued to brew, with downstream making just-in-time procurement, and overall transactions were sluggish. Under the dual pressure of weak demand and easing costs, market quotations pulled back under pressure.

However, some enterprises, considering high costs, still held prices firm with a wait-and-see sentiment remaining. In the short term, ADC12 prices are expected to maintain a sideways consolidation. Going forward, close attention should be paid to primary aluminium trends, aluminium scrap cost fluctuations, and the substantive recovery of end-user orders.

Comprehensive outlook: The Middle East situation remains volatile, concerns over interest rate hikes persist, supply continues to recover, but the destocking pattern is difficult to reverse in the short term. Amid the tug-of-war between longs and shorts, aluminium prices are expected to consolidate and adjust in the near term. Going forward, focus should be on the progress of production resumptions in the Middle East and the trajectory of geopolitical conflicts, changes in LME aluminium ingot inventories, and domestic downstream processing orders.

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.