SHFE and LME aluminium prices stabilise and rebound in Tandem, China destocking strengthens price bottom support

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Futures: The most-traded SHFE aluminium contract opened at RMB 22,940 per tonne in the night session on July 7, with a high of RMB 23,130 per tonne, a low of RMB 22,940 per tonne, and closed at RMB 23,055 per tonne, up 0.50 per cent from the previous close.

During this period, prices rebounded from the previous low of 22,250 to close as a bullish candlestick, settling above the short-term MA5 (22,943.90) and MA10 (22,853.82), but still trading below the medium-to-long-term MAs of MA20 (22,945.68), MA40 (23,290.36), and MA60 (23,555.97). All medium-to-long-term MAs maintained a bearish downward alignment; support at the previous low was effective, and downward momentum weakened further.

Trading volume during this period was 64,300 lots, shrinking significantly from the previous period. Open interest was 239,000 lots, down 6,639 lots from before, with the futures showing a feature of bear position reductions. From a technical perspective, on the 4-hour MACD, the DIFF (-212.61) was above the DEA (-305.69), with the golden cross structure continuing; the red bar value was 186.17, indicating that bullish momentum continued to expand.

However, the overall medium-to-long-term bearish pattern has not been completely reversed. On July 7, LME aluminium opened at USD 3,113 per tonne, with a high of USD 3,152 per tonne, a low of USD 3,103 per tonne, and closed at USD 3,139 per tonne, up 0.84 per cent from the previous close. During the trading day, prices rebounded from the previous low of 3,040 to close as a bullish candlestick, settling above the MA5 (3,118.72), but still trading below all medium-to-long-term MAs: MA10 (3,146.35), MA20 (3,243.12), MA40 (3,353.47), and MA60 (3,382.97).

All-cycle MAs maintained a bearish downward alignment; support at the 3,040 level was solid, and downward momentum continued to contract. Daily trading volume was 19,977 lots, up 4,833 lots from before. Open interest was 600,276 lots, up slightly by 103 lots, with the futures showing modest bullish position building. From a technical perspective, on the daily MACD, the DIFF (-119.6) was below the DEA (-111.38), with the death cross structure continuing; the green bar STICK value was -16.44, indicating that bearish momentum contracted further.

Macro front: Iran's Deputy Foreign Minister Gharibabadi said on social media on the 8th local time that the US cancellation of the waiver for sanctions on Iranian oil sales constitutes a serious violation of Article 10 of the US-Iran Memorandum of Understanding. The subsequent US military actions against Iran also seriously violated Articles 1 and 2 of the same memorandum.

According to the CME FedWatch Tool: the probability of the Fed holding rates steady in July is 73.3 per cent, and the probability of a cumulative 25bps hike is 26.7 per cent. For September, the probability of holding rates steady is 32.4 per cent, a cumulative 25bps hike is 52.7 per cent, and a 50bps hike is 14.9 per cent.

Fundamentals: Regional premiums for aluminium outside China strengthened on expectations of tighter supply. By end-June, the SMM Japan MJP aluminium ingot spot premium reached USD 380 per tonne, up 123.5 per cent from the end of last year, and the SMM Japan Q3 MJP aluminium ingot premium hit USD 395 per tonne, up USD 309 per tonne from Q4 2025, surging 359.3 per cent.

The SMM Europe P1020A aluminium ingot duty-paid price stood at USD 547.5 per tonne, up 62.2 per cent from the end of last year, and the duty-unpaid price was USD 470 per tonne, up 64.9 per cent from the end of last year. The SMM US Midwest DDP aluminium premium reached 110.5¢/lb, equivalent to around USD 2,435 per tonne, up 18.2 per cent from the start of the year, with an absolute increase of about USD 374.7 per tonne. On the inventory front, aluminium ingot inventories in major consumption areas fell by 0.25 from the previous session as of Tuesday, with destocking mainly in Guangdong and Wuxi.

Primary aluminium market: During morning trading, the centre of the SHFE aluminium 2606 contract was higher than the same period the previous trading day. Yesterday, selling sentiment strengthened compared with the previous session. Some downstream users were bullish on near-term aluminium prices, lifting buying sentiment slightly, and price acceptance among downstream users improved from the previous day.

Mainstream transactions were at parity to a premium of RMB 10 per tonne against the SHFE aluminium July contract. Yesterday, the East China selling sentiment index stood at 3.01, up 0.02 from the previous session; the buying sentiment index was 2.80, up 0.01 from the previous session. SHFE aluminium futures continued to rebound. In the central China market, downstream processing enterprises remained reluctant to take orders amid high inventory levels and weak orders, with only a few making small-volume purchases on a need-to basis.

Suppliers initially showed little intention to hold prices firm, but later strengthened their stance, and the market discount showed signs of narrowing. Transaction prices in central China were concentrated at a discount of RMB 90-110 per tonne against the SHFE aluminium July contract. Yesterday, the central China selling sentiment index was 2.89, down 0.01 from the previous session; the buying sentiment index was 2.10, down 0.01 from the previous session.

Aluminium scrap: Yesterday, SMM A00 spot aluminium closed at RMB 22,940 per tonne, up RMB 100 per tonne from the previous trading day. The aluminium scrap market followed the rise, with some regional grades catching up on the previous day's gains.

On the price spread front, on July 7, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan came in at RMB 1,956 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 642 per tonne. It is noteworthy that amid a sharp decline in aluminium prices and tight invoice supply, the price spread for aluminium tense scrap narrowed sharply.

Some cast aluminium alloy enterprises have already started using A00 aluminium ingot instead of aluminium scrap as raw material for production. The aluminium scrap market is expected to continue consolidating on a subdued note, with limited downside room.

Shredded aluminium tense scrap priced based on aluminium content is expected to trade mainly at RMB 19,200-19,800 per tonne (excluding tax). Supply side, the constraints of the reverse invoicing policy are hard to reverse in the short term, and the tight supply of compliant invoiced cargo persists. Import side, the lagged suppression effect from multiple bearish factors on actual port arrivals will gradually unfold in the coming months, with further weakening of import aluminium scrap supplementation. Demand side, amid the deepening off-season, downstream operating rates remain low, and terminal orders show little substantial improvement.

Scrap utilisation enterprises are likely to continue purchasing as needed and maintain low inventory strategies. The price difference between A00 aluminium and aluminium scrap has narrowed to historical lows, greatly eroding the economic advantage of aluminium scrap over primary aluminium. If aluminium prices continue to decline, the substitution effect will accelerate.

Secondary aluminium alloy: Spot side: Yesterday, domestic secondary aluminium alloy market quotes mostly consolidated on a strong note, with SMM ADC12 price up RMB 50 per tonne M-o-M to RMB 24,050 per tonne. The rebound in aluminium prices and cost side fluctuating at highs remain the core factors supporting enterprises to hold prices firm.

The tight circulation of aluminium scrap and procurement costs staying high limit room for price concessions. However, downstream demand recovery pace is slow, with modest order growth. Some enterprises worry about whether transactions can follow the price hikes, and most still choose to hold steady and wait.

Overall, cost support and futures recovery jointly push the price centre of ADC12 higher, but the demand side has not yet formed effective cooperation. In the short term, the market is likely to consolidate within a narrow range, with strong resistance to decline but also limited upside room.

Aluminium market recap: Macro front, the weak US June non-farm payrolls delayed expectations for US Fed interest rate hikes, and the weaker US dollar provided valuation support for nonferrous metals. However, hawkish remarks by officials reiterating high interest rates and balance sheet reduction limited the downside room for the dollar.

The resumption of US-Iran nuclear consultations continued to narrow the geopolitical risk premium, somewhat suppressing upside room for commodities. Meanwhile, expectations for the commissioning of new aluminium capacity outside China form a medium and long-term supply negative. In China, positives stood out, with the proportion of liquid aluminium continuing to rise, warehouse withdrawals of aluminium ingot hitting a four-year high in the past week, and inventory destocking pace significantly accelerating, supporting the bottom of SHFE aluminium.

Amid intertwined bullish and bearish factors, the positive from the US dollar overseas and the negatives from supply and geopolitics offset each other. LME aluminium, following a previous excessive decline, saw slowing downside momentum, and is likely to consolidate and repair at lows in the short term. Supported by rapid destocking, the probability of China's market underperforming LME aluminium is low. SHFE and LME may see slight divergence, and a one-sided weak trend is unlikely to persist.

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.