Short-term geopolitical premiums trends to converge; Domestic-overseas divergence pattern to continue in the near term

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Macro perspective: Glimmers of a Middle East ceasefire coexist with setbacks, while expectations for US Fed interest rate hikes heat up

Outside China, the US-Iran framework agreement is reportedly 95 per cent finalised, with both sides reaching preliminary consensus on a 60-day temporary ceasefire and the restoration of navigation through the Strait of Hormuz. If signed, shipping through the strait would resume within 30 days. However, US forces subsequently launched strikes on Iran, with Iran condemning the US for violating the ceasefire agreement. In addition, market expectations for US Fed interest rate hikes rose this week.

Fundamentals: The divergence between domestic and overseas markets continued, with destocking emerging in China but at a modest pace

Outside China, supply disruptions in the Middle East persisted, and LME inventory continued to decline. As of this Wednesday, LME inventory stood at 338,000 tonnes, down about 1,500 tonnes W-o-W.

The LME aluminium Cash-3 M premium was USD 74.42 per tonne, up about USD 19.86 per tonne W-o-W, with the high premium structure maintained. Japan's Q3 spot premiums rose, and the rigid supply gap outside China provided continued support for LME aluminium. In China, as of this Thursday, SMM aluminium social inventory stood at approximately 1.401 million tonnes, down 11,000 tonnes from last Thursday. Destocking has begun to emerge, but inventory remains at a historical high for the same period.

Overall, if the US-Iran ceasefire agreement materialises, it would significantly ease concerns over Middle East supply, but recurring military frictions leave uncertainty over the peace outlook, with short-term geopolitical premiums tending to converge but not fully dissipated. The rigid supply gap outside China supports a strong LME aluminium pattern, while domestic destocking has just begun but with weak momentum, limiting the upward elasticity of SHFE aluminium.

The divergence between domestic and overseas markets is expected to continue in the short term. Going forward, key focuses include whether domestic destocking accelerates, whether the US-Iran agreement is formally signed, further clarity on the US Fed's interest rate path, and whether China is further regulating aluminium capacity operations. The most-traded SHFE aluminium contract is expected to trade within RMB 24,100-24,800 per tonne next week, while LME aluminium is expected to trade within USD 3,550-3,700 per tonne.

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.