The aluminum market continued its divergent trends of the past week, though the underlying drivers have entered a phase of subtle rebalancing. On the macroeconomic front, geopolitical premiums have been unwinding following the US-Iran peace agreement. Concurrently, the Federal Reserve's June policy meeting delivered a strongly hawkish signal, with the dot plot indicating a clear bias towards front-loaded interest rate hikes. This has bolstered the US dollar and raised expectations for tighter liquidity, creating systemic pressure on base metals.
The Shanghai aluminum market is currently locked in a tug-of-war between bullish and bearish forces. Geopolitically, the signing of the US-Iran deal has led to a continued retreat of the supply-side premiums previously inflated by regional tensions. The prospect of restarting nearly 2 million tonnes of idled capacity in the Persian Gulf region is pressuring longer-dated contracts. However, the restart cycle for aluminum smelting capacity is lengthy, typically taking 12 to 18 months, making it difficult to quickly close the short-term supply gap. LME aluminum inventories have fallen to a historical low of 316,500 tonnes, with the cash-to-three-months spread flipping into backwardation at a premium of $4.5. Data from the World Bureau of Metal Statistics (WBMS) shows a global primary aluminum deficit of 145,100 tonnes in April and a cumulative deficit of 441,700 tonnes from January to April. The tight supply and low inventory situation overseas has not fundamentally reversed.
Domestically, the pace of inventory drawdowns has accelerated significantly. According to Mysteel, electrolytic aluminum inventories in China's major markets stood at 1.256 million tonnes as of June 18th. SMM data shows that inventories of primary aluminum ingots in key consumption regions were 1.255 million tonnes on June 18th, down 57,000 tonnes from the previous Thursday. Aluminum billet inventories also declined to 146,000 tonnes. Combined social inventories of ingots and billets are approximately 1.4 million tonnes, indicating a notably faster destocking rhythm. However, absolute inventory levels remain high compared to historical seasonal averages. Coupled with the deepening traditional off-season for consumption, the operating rate of leading downstream aluminum processing enterprises has declined month-on-month to 63.4%. Specifically, operating rates for aluminum profiles fell by 1.8 percentage points to 55.8%, and for aluminum sheet/plate by 0.4 percentage points to 71.6%. Only aluminum wire and cable, supported by exports, saw an increase of 0.6 percentage points to 68.6%. The export sector has been a crucial counterbalancing force recently, with China's exports of unwrought aluminum and aluminum products reaching 630,000 tonnes in May, a year-on-year increase of 15.6%.
In the spot market, A00 aluminum ingots in East China traded at a discount of 70 to 30 yuan per tonne to the SHFE July 2607 contract, with downstream buyers maintaining rigid demand-based purchases. Overall, it is reasonable to expect the main SHFE aluminum contract to trade under pressure within the range of 23,700 to 24,300 yuan per tonne. Low overseas inventories and the supply deficit limit the downside, while the unwinding of geopolitical premiums, macroeconomic headwinds, and the seasonal consumption lull collectively cap upside potential.
Market Outlook for Alumina
The alumina market is caught between the reality of oversupply and the tug-of-war from multiple policy disruptions. On the supply side, SMM data shows that as of June 18th, China's total operating capacity for metallurgical-grade alumina was 87.41 million tonnes per annum. The weekly operating rate fell by 0.94 percentage points from the previous week to 73.82%, with weekly output dropping by 22,000 tonnes to 1.676 million tonnes. In Shanxi, approximately 2 million tonnes of alumina capacity has been affected by environmental controls related to red mud disposal. Some plants in northern China have also begun phased maintenance, tightening spot availability in the region. However, this has been offset by new alumina plants in Guangxi that started production in May and June, with new capacity ramping up continuously. Inventory pressure remains a concern, with total market-wide inventories increasing by 50,000 tonnes week-on-week. The build-up mainly occurred at ports, where inventories rose by 59,000 tonnes to 827,000 tonnes.
Warehouse receipts on the Shanghai Futures Exchange saw a significant weekly decrease of 109,100 tonnes to 268,900 tonnes. This reduction was primarily due to the expiry and cancellation of contracts rather than active withdrawals, creating potential spot selling pressure from near-expiry deliveries. On the news front, Guinea's policy on bauxite export controls remains unresolved. Market expectations suggest an export cap of 150 million tonnes for 2026, a reduction of approximately 33 million tonnes from 2025, providing a floor for prices.
On the cost front, based on imported Guinean bauxite prices, alumina production costs are around 2,769 yuan per tonne, with some capacity already near the break-even line. Spot domestic alumina was quoted at 2,730.29 yuan per tonne, while the futures contract closed at 2,898 yuan per tonne.
In summary, the main alumina futures contract is expected to experience wide fluctuations within the 2,800 to 3,000 yuan per tonne range. The long-term theme of oversupply remains unchanged, but short-term support is being provided by environmental disruptions in Shanxi and policy expectations from Guinea.
Analysis of Cast Aluminum Alloys
Cast aluminum alloys have demonstrated notable resilience against price declines, with the core driver remaining on the cost side. The domestic scrap aluminum market continues to be impacted by the reverse invoicing policy. The dual pressures of increased compliance costs and reduced imports are leading to persistently tight supply.
According to SMM data, the theoretical total industry cost for ADC12 from January to May 2026 increased by 14.0 percentage points compared to 2025, reaching 23,305 yuan per tonne. Scrap aluminum costs accounted for approximately 21,070 yuan per tonne, representing a high 90.4% of the total. Signals of supply contraction continue to strengthen, with the operating rate of leading secondary aluminum enterprises falling by another 0.3 percentage points last week to 53.1%.
Social inventories of secondary aluminum alloy ingots in major domestic consumption regions decreased by 3,700 tonnes week-on-week to 26,000 tonnes, marking the third consecutive week of destocking. On the demand side, the off-season tone persists. Data from the China Association of Automobile Manufacturers shows that automobile production and sales in May fell by 1.2% and 2.1% year-on-year, respectively. Downstream die-casting enterprises are primarily purchasing based on immediate needs, with subdued pre-holiday stocking activity before the Dragon Boat Festival. In the spot market, SMM ADC12 prices held steady at 24,100 yuan per tonne.
Overall, the convergence of scrap aluminum shortages, expanding production cuts, and inventory drawdowns is providing price support. However, weakness on the demand side will continue to limit upside potential. In the short term, ADC12 is expected to maintain a relatively firm stance within the range of 22,800 to 23,800 yuan per tonne, with its price center continuing to closely track movements in primary aluminum.
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