US fed hawkish expectations combined with easing Middle East tensions, aluminium prices under pressure

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Futures: The most-traded SHFE aluminium 2608 contract closed at RMB 22,970 per tonne, down 2.13 per cent. Prices trade below the MA5 (23,630.00), MA10 (23,854.00), MA30 (24,256.83), and MA60 (24,549.33) moving averages, with short- and medium-term moving averages in bearish alignment and gradually pressing lower.

The overall structure is significantly in the doldrums, with clear resistance from these moving averages above. The MACD DIF (-290.3158) is below DEA (-190.8865), the MACD histogram is at -198.8586, and bearish momentum continues to release, indicating persistent weakness. The suggested core trading range for SHFE aluminium is RMB 22,900-23,600 per tonne.

The LME aluminium 3M contract closed at USD 3,130 per tonne, up 0.48 per cent. Prices trade below the MA5 (3,252.40), MA10 (3,339.70), MA30 (3,532.57), and MA60 (3,536.07) moving averages, with short- and medium-term moving averages in bearish alignment and gradually pressing lower.

The overall structure is significantly in the doldrums, with clear resistance from these moving averages above. The MACD DIF (-101.9751) is below DEA (-57.5277), the MACD histogram is at -88.8948, and bearish momentum continues to release, indicating persistent weakness. The suggested core trading range for LME aluminium is USD 3,110-USD 3,250 per tonne.

Macro front: US President Trump posted on social media that Iran has informed the US that vessels transiting the Strait of Hormuz are currently subject to “no tolls, insurance fees, or any other charges.” The International Maritime Organisation (IMO) released operational details for the Strait of Hormuz evacuation plan, stating that over 11,000 crew members stranded on vessels in the Gulf region will be evacuated in phases under a unified coordination mechanism.

Foreign Minister Wang Yi held a phone call with Pakistani Deputy Prime Minister and Foreign Minister Dar at the latter's invitation. Dar briefed on the launch of a new phase of negotiations between Iran and the US. Wang Yi noted that the next phase should focus on three priorities.

First, consolidate the comprehensive ceasefire and cessation of hostilities, and must not reignite war. Second, restore normal navigation in the Strait of Hormuz as soon as possible to ensure the stability of global production and supply chains. Third, support Middle Eastern countries to improve their mutual relations as soon as possible and explore new regional security architecture.

Fundamentals: Outside China, the positive trend in US-Iran relations continued. The accelerated resumption of navigation in the Strait, combined with rising hawkish expectations for US Fed rate hikes, led to an accelerated erosion of geopolitical risk premiums. Against the backdrop of easing tensions in the Middle East and high aluminium prices, new overseas capacity was brought online ahead of schedule.

However, due to the characteristics of aluminium production, it was difficult for previously suspended capacity in the Middle East to resume production quickly in the short term. In terms of domestic aluminium ingot inventories, domestic social inventory of aluminium ingots stood at 1.205 million tonnes this Thursday, destocking 37,000 tonnes from Monday, with the destocking trend continuing.

Primary aluminium market: In the morning session, the trading centre of the SHFE aluminium 2606 contract fell below the same period's level of the previous trading day. As aluminium prices dropped, the release of stockpiling sentiment from prior price declines, combined with pervasive bearish market sentiment, led to overall weak purchase demand yesterday.

Transaction prices extended declines, with mainstream trades at a discount of RMB 30-50 per tonne against the SHFE aluminium July contract. In east China, the sell sentiment index stood at 2.98 yesterday, down 0.13 from the previous day; the purchase sentiment index was 2.83, down 0.24. Yesterday’s morning session pulled back sharply from the previous day, prompting traders in central China to raise their quotes.

At low prices, suppliers showed low willingness to sell, held back from selling notably, and their intentions to hold prices firm were significant. Downstream processing enterprises exhibited strong fears of further price declines, a heavy wait-and-see atmosphere, and weakening buying sentiment. Ultimately, the actual transaction price range in central China was centred around a discount of 60-RMB 90 per tonne against the SHFE aluminium July contract. In central China, the sell sentiment index was 2.93 yesterday, down 0.02 from the previous day; the purchase sentiment index was 2.20, down 0.01.

Aluminium Scrap: Yesterday, the SMM A00 price plunged RMB 330 per tonne from the previous trading day to RMB 23,470 per tonne. The aluminium scrap market followed the decline broadly, but cost support was notable, limiting the extent of losses.

Regarding price differences between A00 aluminium and aluminium scrap, on June 24, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was recorded at RMB 2,184 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap stood at RMB 1,533 per tonne. Enterprise tax costs increased by more than 2 per cent Y-o-Y.

The continued narrowing of the price differences reflects strong bottom support for aluminium scrap. Supply side, regulatory oversight on the "reverse invoicing" policy continued to tighten. Cancellation of tax rebates and intensified tax audits in some provinces pushed up costs for VAT-invoiced raw materials. The price spread between Chinese and overseas markets remained inverted, and scarce low-priced, high-quality imported supplies further reduced supplementation to the domestic market. Demand side, the off-season effect deepened, with downstream scrap utilisation enterprises operating at low rates.

End-use orders were insufficient, and enterprises maintained purchasing as needed and low inventory strategies in a cautious buying atmosphere. The aluminium scrap market is expected to continue its pattern of weak fluctuations at elevated levels. The tight supply of compliant, VAT-invoiced cargoes persists, and coupled with expanding output cuts and halts, expectations of a contraction in aluminium scrap supply strengthen, providing bottom support for prices.

Demand side, downstream secondary cast aluminium alloy orders remain sluggish, and purchasing support from wrought aluminium alloys has also weakened; end-use consumption is unlikely to see substantial improvement. The supply-demand weakness in the aluminium scrap market is unlikely to reverse in the near term.

Secondary aluminium alloy:  Yesterday, ADC12 market quotes were mostly lower, with SMM ADC12 dropping RMB 100 per tonne from the previous trading day to RMB 24,000 per tonne. The recent continued weakness in SHFE aluminium and cast aluminium alloy futures prices has led to some loosening in aluminium scrap prices, and cost-side pressure eased slightly compared to earlier, opening room for price reductions.

However, the issue of tax invoices in the aluminium scrap market has not seen significant improvement, making procurement of compliant raw materials relatively difficult and keeping enterprises' actual production costs at a relatively high level, which provides strong support for ADC12 prices. Downstream demand continues to show off-season characteristics, with procurement primarily driven by essential restocking, and transaction performance remains mediocre. In the short term, ADC12 prices will continue to fluctuate within a narrow range.

Aluminium market recap: The accelerated recovery of strait shipping, combined with hawkish expectations from the US Fed, has led to a continued rapid contraction of the geopolitical premium. In the short term, LME aluminium will be under pressure.

In China, the destocking pace has been maintained, but absolute inventories remain at a high range, unchanged. Without new macro positive factors, SHFE aluminium is following LME aluminium under pressure. In the short term, aluminium prices are expected to remain in the doldrums.

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.