The aluminum market is currently caught in a fierce tug-of-war between macro headwinds and fundamental industrial support, with prices showing a volatile, bottom-seeking pattern.
On July 2nd, the main Shanghai aluminum 2608 contract weakened in the afternoon after an early surge, closing at 22,400 yuan per ton, down 85 yuan or 0.38% for the day. Trading volume was 201,300 lots, while open interest fell by 6,146 lots to 280,800 lots. In the spot market, prices rose by 280 yuan across the board, with mainstream quotes in the Yangtze River, Guangdong, and Shanghai regions concentrated between 22,505 and 22,560 yuan per ton. Inter-regional premiums and discounts remained largely stable, continuing the recent pattern of a weaker futures market versus a stronger physical market.
From a macro and overseas supply perspective, Federal Reserve Chair Waller's reiteration of diminishing inflation risks, coupled with weak U.S. ADP employment data (an increase of only 98,000 jobs), has cooled market expectations for the upcoming non-farm payrolls report, leading to a marginal improvement in macro sentiment. However, a strong U.S. dollar and a global tech stock correction continue to pressure valuations for non-ferrous metals. On the overseas supply front, the restart of Emirates Global Aluminium's (EGA) Al Taweelah facility has accelerated, with 89 electrolytic cells already back online, although a full return to pre-conflict levels is estimated to take about a year. Expectations for capacity expansion in Indonesia are also heating up. Following the unwinding of geopolitical risk premiums, both domestic and international aluminum prices have come under downward pressure.
Domestic fundamentals, however, are demonstrating strong resilience. On the supply side, China's operating capacity has increased to around 45.1 million tonnes. With high profit margins, producers have a strong incentive for overcapacity operation, but domestic capacity has already hit the 45-million-tonne ceiling, leaving very limited room for marginal increases. On the demand side, while the market is entering its traditional off-season with weaker construction profiles and photovoltaic production schedules, robust orders from the new energy vehicle, energy storage, AI data center, and ultra-high-voltage power grid sectors have formed a solid consumption base. This is further bolstered by increased air conditioner exports driven by extreme heatwaves in Europe, effectively offsetting soft domestic demand. Regarding inventory, domestic social stockpiles are being drawn down at an accelerating pace, with a clear inflection point established, providing a solid floor for aluminum prices. It is expected that aluminum prices will fluctuate weakly within the range of 22,100 to 23,200 yuan per ton in the short term, with limited room for a deep decline.
A development warranting close attention is the recent shift of "aluminum for copper" substitution from concept to substantive industrial application. Driven by persistently high copper prices and the lightweighting demands of new energy vehicles, automakers like BMW and Ferrari are accelerating the adoption of aluminum high-voltage wiring harnesses. Leading companies in the air conditioning industry have also jointly advocated for promoting the use of aluminum heat exchangers. Substituting aluminum for copper can achieve weight reductions of 20% to 45% while significantly cutting costs.
However, this substitution is not a simple material swap. Aluminum has weaker thermal conductivity and corrosion resistance compared to copper, and welding dissimilar materials presents significant technical challenges. Currently, the substitution process is mainly concentrated in low-end air conditioners and automotive high-voltage wiring harnesses, with high-end models still predominantly using all-copper components. This represents a "step-by-step" industrial penetration, with accelerated adoption expected around 2028-2030 as supporting technologies mature. In the long run, the aluminum-for-copper trend could open up an incremental demand space of 200,000 to 500,000 tonnes for the aluminum market, becoming a new pillar supporting its high-elasticity demand growth.
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