US fed rate hike expectations persist, geopolitical premium boost the resilience of aluminium price bottom

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Futures: The most-traded SHFE aluminium 2608 contract settled at RMB 23,075 per tonne, up RMB 75 from yesterday’s settlement price, a rise of 0.33 per cent. It opened at RMB 23,040 per tonne and traded in a range of RMB 23,025-23,160 per tonne. The price traded above the MA5 (23,042.00) and MA10 (22,864.50) but below the MA30 (23,543.17) and MA60 (24,138.33) moving averages. The short- and medium-term moving averages formed a bearish alignment and gradually exerted downward pressure, highlighting a pronounced structure of consolidating on a subdued note.

The multiple moving averages overhead acted as layers of resistance. The MACD indicator showed DIF (-303.1975) above DEA (-364.8229), and the MACD histogram was 123.2509, suggesting that bearish momentum had eased. The advised core trading range for SHFE aluminium is RMB 22,600-23,400 per tonne. The LME aluminium 3M contract settled at USD 3,158 per tonne, up 0.02 per cent.

The price traded below the MA5 (3,161.70), MA10 (3,135.05), MA30 (3,311.17), and MA60 (3,452.88) moving averages. The short- and medium-term moving averages formed a bearish alignment and gradually exerted downward pressure, with a notable structure of consolidating on a subdued note.

The moving averages overhead exerted clear resistance. The MACD indicator showed DIF (-85.0133) above DEA (-99.7896), and the MACD histogram was 29.5525, as bearish momentum eased and the downward momentum slowed down. The advised core trading range for LME aluminium is USD 3,100-3,200 per tonne.

Macro front: US President Trump posted on social media that the US would re-impose a "blockade against Iran," targeting only Iranian vessels or clients by restricting their access to the Strait of Hormuz. All other countries would be allowed fair and open use of the strait. Trump also said that the US would charge a 20 per cent fee on all goods shipped through the strait, with implementation and deployment to begin immediately.

President Trump stated that strikes against Iran would continue. He officially notified Congress that the Iran conflict had flared up again. The US military announced that it would begin a maritime blockade against Iran at 16:00 Eastern Time on July 14.

Iran responded that it would never allow US interference in the management of the Strait of Hormuz and warned that if the conflict expanded in the region, all countries in the area would be engulfed in the flames of war. Federal Reserve Governor Waller remarked that if this week’s core inflation data came in high again, the Fed would need to consider a near-term rate hike.

Fundamentals: In markets outside China, geopolitical tensions fluctuated, and the unresolved Strait of Hormuz issue pushed up geopolitical premiums. Production resumptions and new capacity releases continued in the ex-China aluminium sector, gradually materialising supply growth in the global aluminium market.

Market expectations for a transition from a tight to a surplus market in the long term continued to heat up, significantly capping the upside room for spot aluminium premiums outside China and putting medium and long-term pressure on LME aluminium prices.

Meanwhile, expectations for US Fed interest rate hikes persisted, continuing to cap the upside of aluminium prices. In the Chinese market, inventory side, domestic aluminium ingot inventory kept destocking. On the inventory front, domestic mainstream consumption-area aluminium ingot inventory stood at 1.078 million tonnes yesterday, destocking by 20,000 tonnes W-o-W from last Thursday and by 52,000 tonnes W-o-W from last Monday.

Primary aluminium market: In morning trading, the SHFE aluminium 2606 contract’s trading centre ran lower than the same period of the previous trading day. Dragged by falling aluminium prices, today's market buying sentiment picked up M-o-M. Market transactions were done at parity to a premium of RMB 10 per tonne against the SHFE aluminium 07 contracts, with quotes against the SHFE aluminium 08 contract around a discount of RMB 20 per tonne to parity. Today, the east China selling sentiment index came in at 3.08, up 0.04 M-o-M; the buying sentiment index was 3.16, up 0.06 M-o-M.

Today, the transaction atmosphere in the central China market stayed high. Trading firms engaging in both spot and futures market tended to make heavy purchases at low discounts, boosted by which, market quotes gradually edged up. However, downstream processing enterprises, constrained by insufficient end-user orders, saw persistently subdued buying sentiment, diverging widely from the buying prices offered by traders.

Eventually, the actual transaction price range in the central China market centred around a discount of RMB 100-130 per tonne against the SHFE aluminium 08 contract. Today, the central China selling sentiment index came in at 2.83, down 0.01 M-o-M; the buying sentiment index came in at 2.21, up 0.04 M-o-M.

Secondary aluminium materials: Today, SMM A00 spot aluminium prices closed at RMB 23,000 per tonne, down RMB 120 per tonne M-o-M from the previous trading day. The aluminium scrap market largely followed the decline, with some regions and varieties holding steady on a wait-and-see stance. Supply-side constraints continued to intensify, with the impact of the reverse invoicing policy deepening further.

News emerged from Shandong that the reverse invoicing would be suspended starting July, and small- and medium-sized scrap utilisation enterprises in Anhui, Jiangxi, Hubei, and other regions saw spreading production cuts and stoppages.

Compliant, invoiced aluminium scrap became increasingly scarce. On the import side, the earlier inverted price spread between Chinese and overseas markets led to a scarcity of high-quality overseas cargo, and due to a 1-3 month shipping lag, port arrivals were set to remain low, June-August. Meanwhile, the UAE’s implementation of an aluminium scrap export ban and the EU’s tariff hike policy further tightened overseas aluminium scrap supply.

This week, the aluminium scrap market is expected to continue its sideways pattern, capped by demand and underpinned by costs. The mainstream trading range for shredded aluminium tense scrap (priced based on aluminium content) is likely to centre around RMB 19,900-20,500 per tonne. The pullback in spot primary aluminium prices limited the further narrowing of the price difference between A00 aluminium and aluminium scrap.

The economic advantage of aluminium scrap over primary aluminium is unlikely to disappear in the short term, and demand-side support for aluminium scrap prices remained in place. Should aluminium prices continue to trend lower subsequently, the substitution effect of primary aluminium for aluminium scrap will accelerate and become more evident.

Secondary aluminium alloy: In the spot market, ADC12 market quotes overall consolidated on a subdued note today, with SMM ADC12 prices sliding by RMB 100 per tonne M-o-M from the previous trading day. The pullback in aluminium prices and the weakening of cast aluminium alloy futures weighed on market sentiment, with enterprises’ price centres moving lower in tandem with the cost side.

Meanwhile, downstream demand continued to weaken, and sluggish trading sentiment further eroded enterprises’ willingness to hold prices firm. Overall, against a backdrop of weakening cost support and increasingly evident off-season demand characteristics, the ADC12 market will mainly move sideways on a weak note in the short term.

Overall outlook: Overall, the recent escalation of geopolitical conflicts in the Middle East has expanded risk premiums, coupled with continued destocking of domestic aluminium ingots, supporting aluminium prices to hold up well.

However, the continued commissioning of aluminium capacity outside China and the US’s pursuit of a strong dollar policy will continue to cap the upside room for aluminium prices, putting notable pressure on the upside. In summary, aluminium prices are expected to continue consolidating on a strong note while encountering resistance in the short term.

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.