Last week, the aluminum market experienced choppy trading as bullish and bearish factors intertwined. The core dynamics shaping current prices stem from the ongoing tug-of-war between macroeconomic forces and geopolitical events, combined with continued inventory drawdowns and the deep seasonal lull in consumption.
On the macroeconomic front, the much weaker-than-expected US non-farm payrolls data for June alleviated some inflation concerns and dampened expectations for further interest rate hikes. However, geopolitical tensions have flared anew, with the collapse of the US-Iran ceasefire agreement reigniting regional conflicts and injecting significant uncertainty into the market. The ongoing Middle East conflicts continue to elevate risk premiums, serving as a key short-term prop for aluminum prices.
Alumina maintained a weak and volatile pattern. As of the close on July 10th, the main alumina 2609 contract settled at 2,715 yuan per tonne, down a slight 0.15% week-on-week. The average spot price for domestic alumina was 2,762 yuan per tonne, down 0.5% from the previous week, with a spot premium of 47 yuan per tonne. Supply-side pressure persists, with China's total metallurgical-grade alumina capacity at 118.42 million tonnes per year and operating capacity at 88.08 million tonnes per year. The weekly operating rate edged up 0.11 percentage points to 74.38%.
Regarding inventory structure, raw material stocks at aluminum smelters decreased by 6,000 tonnes to 3.358 million tonnes, while finished product inventories at alumina plants increased slightly by 2,000 tonnes to 1.232 million tonnes. Notably, regional supply disruptions are emerging. Affected by Typhoon Maysak, parts of Guangxi have been hit by persistent heavy rainfall, causing temporary restrictions on shipments from local alumina plants and ports. Concurrently, the onset of the rainy season in Guinea has led to a decline in bauxite ore grades and insufficient effective supply. Coupled with limited domestic ore production, traders' reluctance to sell has intensified, tightening spot availability in the circulation chain.
However, the Guinean government's failure to extend the bauxite export quota policy on July 1st has continued to cool the speculative sentiment surrounding ore supply that had built up earlier. On the cost front, alumina prices are nearing the breakeven point, with most producers operating at a loss. Overall, the fundamental tone of oversupply in alumina remains unchanged. Still, the short-term supply constraints from Guangxi's shipping disruptions and Guinea's rainy season are providing a floor for prices. In the near term, alumina is expected to trade weakly within a range of 2,600 to 2,800 yuan per tonne.
Shanghai aluminum futures staged a modest rebound last week, showing relatively firm performance. By the close on July 10th, the main SHFE aluminum 2608 contract settled at 23,055 yuan per tonne, up 0.94% week-on-week. The spot price for A00 aluminum ingot in the Changjiang market was 23,120 yuan per tonne, up 1.58% from the previous week, with a spot premium of 65 yuan per tonne.
Inventory data shows the destocking trend is not only continuing but accelerating. As of July 9th, primary market aluminum inventories in China fell to 1.062 million tonnes, a reduction of 26,000 tonnes from the start of the week. For the week of July 10th, SHFE aluminum warehouse receipts dropped to 481,685 tonnes, down 24,229 tonnes or 4.79% from the previous week. Aluminum billet destocking was also significant, with inventories in major domestic consumption areas falling to 116,500 tonnes by July 9th, down 13,500 tonnes from the prior Thursday. Overseas, LME aluminum inventories have declined to near four-year lows, creating a dual support base for prices from both domestic and international low stockpiles.
On the supply side, domestic operating aluminum capacity is approaching the 45-million-tonne-per-year ceiling. Overseas, some idled capacity in the Middle East has begun restarting, with Emirates Global Aluminum's (EGA) resumption pace notably faster than expected. However, heightened geopolitical uncertainty means the short-term supply of primary aluminum remains in a state of periodic tightness. Demand is constrained by the seasonal lull. The operating rate for leading domestic aluminum processors dipped slightly by 0.7 percentage points this week to 61.9%, with declines seen across sheet & plate, wire & cable, and extrusion segments. Nevertheless, demand from emerging sectors like new energy vehicles and energy storage, along with aluminum product exports, continues to show resilience.
In summary, persistent Middle East conflicts are pushing risk premiums higher, and the ongoing drawdown in aluminum ingot inventories both domestically and internationally is supporting firmer prices. However, the traditional demand off-season is limiting downstream purchasing appetite, which may cap the upside for any rebound. In the short term, SHFE aluminum is expected to trade within a range of 22,300 to 23,500 yuan per tonne.
Foundry aluminum alloy continued its pattern of being underpinned by costs and trading on a firm footing. By the close on July 10th, the main foundry alloy 2609 contract settled at 22,965 yuan per tonne, up 1.1% week-on-week. Jiangxi Baotai's ADC12 offer was at 23,300 yuan per tonne, down 0.43% from the previous week, with a spot premium of 335 yuan per tonne.
Data shows that as of July 13th, daily inventories of domestic recycled aluminum alloy ingots in major consumption areas were a mere 12,400 tonnes, down 616 tonnes from the previous day, with Foshan destocking 506 tonnes. Cost factors are currently the most critical support. Tightness in tax invoices and restrictions on procuring compliant scrap continue to hamper production. Seasonal declines in domestic scrap collection, coupled with insufficient import supply, are making scrap prices prone to increases rather than decreases. Supply contraction signals are strengthening, with midstream smelter operating rates declining noticeably. Some producers have proactively cut output due to raw material shortages and negative margins. New warehouse inflows remain low, while order fulfillment and widening basis differentials are driving increased buyback demand from manufacturers. Demand continues its seasonal weakness, with downstream die-casting entering its traditional slack period. Orders for automotive parts and general components are subdued, particularly for smaller factories, with transactions primarily driven by essential needs.
Overall, the foundry aluminum alloy market presents a contest between "cost support" and "demand suppression." Scrap scarcity, expanding production cuts, and inventory drawdowns collectively underpin prices, but weak die-casting orders during the off-season limit upside potential. In the short term, foundry aluminum alloy is expected to trade firmly within a range of 22,000 to 23,500 yuan per tonne, with its price center continuing to closely track movements in primary aluminum.
In conclusion, the core contradictions for the three main aluminum products currently differ. Alumina is trading on the interplay between structural oversupply and short-term regional disruptions. Shanghai aluminum reflects the push-and-pull between geopolitical risk premiums, inventory destocking, and seasonal consumption weakness. Foundry aluminum alloy is primarily driven by cost support stemming from tight scrap supply. Going forward, key factors to monitor include the evolution of US-Iran tensions, whether domestic social inventories can continue their rapid drawdown and fall back below one million tonnes, and the actual implementation timeline for Guinea's bauxite policies.
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