Good morning. Let's start with the latest developments. Israeli Airstrike Targets Crowd in Gaza City According to reports, a source from the Palestinian health ministry in Gaza stated that on May 31, Israeli forces conducted an airstrike on a crowd by the sea west of Gaza City, resulting in two deaths and multiple injuries. The Israeli military has not yet issued a statement regarding this incident. Earlier that day, the Israel Defense Forces stated that over the past week, they had carried out and destroyed three Hamas weapons storage facilities in the Gaza Strip. Israeli Prime Minister Orders Expansion of Military Operations in Lebanon Israeli Prime Minister Benjamin Netanyahu stated on May 31 that he has directed the Israeli military to expand its military operations in Lebanon. He said that Israeli forces captured the Beaufort Castle on the evening of May 30, raising the Israeli flag and the flag of the Golani Brigade there. Netanyahu stated that Israeli troops have crossed the Litani River, taken control of key areas, and occupied the Beaufort Ridge. His current directive is to deepen and expand the military's control over areas that were previously under Hezbollah's control. On May 30, the Israeli military continued its attacks on areas in southern Lebanon, including Nabatieh, targeting areas around the historic Beaufort Castle and several towns and villages, causing casualties among civilians and Lebanese soldiers. Reports indicate the Israeli military is attempting to encircle Nabatieh. After crossing the Litani River in southern Lebanon, Israeli forces expanded their ground operations, continuing to advance northward and attempting to seize high ground to surround Nabatieh. Previously, talks between Lebanese and Israeli military delegations in Washington, D.C., on May 29 failed to reach an agreement on a ceasefire. Israeli Prime Minister Netanyahu stated that day that a main force of the Israeli military had crossed the Litani River in southern Lebanon. Ukrainian Military Claims Strikes on Multiple Russian Oil/Gas Facilities and Military Targets The General Staff of the Armed Forces of Ukraine stated on May 31 that between May 30 and the early hours of May 31, Ukrainian forces launched attacks on multiple Russian oil and gas facilities and military targets. In a social media post, the General Staff stated that the Saratov oil refinery in Russia was attacked by Ukrainian forces in the early hours of May 31, causing a large fire. The Saratov refinery is a key Russian fuel infrastructure facility with a designed annual refining capacity of 7 million tons. Additionally, in the early hours of May 31, Ukrainian attacks reportedly targeted an oil pumping station in Russia's Kirov region, a large oil storage depot in Matveyev Kurgan, Rostov region, a command post and observation post in Begosha on the eastern border of Kursk region, drone command posts in Graforovka, Belgorod region and Kalinovye, Donetsk region, and a drone repair plant, among other military objectives. The General Staff also stated that on May 30, Ukrainian forces attacked an oil storage depot at the Feodosia oil terminal in Crimea and a natural gas storage facility in Yenakiyevo, western Donetsk region. International Oil Prices Open Sharply Higher At the opening on June 1, WTI crude oil futures rose to touch $90 per barrel, up 3.02% intraday. Brent crude oil futures rose 1.8%. As of the time of writing, both WTI and Brent crude futures were up over 2%. Global Aluminum Market Shows Divergence; How Will SHFE Aluminum Prices Move Next? Recently, the global aluminum market has shown a divergent performance: Rio Tinto and South32 offered third-quarter aluminum premiums to Japan at $460 and $480 per ton respectively, up over $100 per ton from the previous quarter, hitting a record high. LME aluminum prices continue to climb, reaching near four-year highs. JPMorgan predicts the aluminum market will see its largest annual supply deficit since 2000 this year. As a major aluminum importer in Asia, the Japan aluminum premium (MJP) is widely regarded within the industry as a benchmark reflecting demand in East Asia. Wang Guodong, a non-ferrous metals analyst at Changjiang Futures, stated that although the MJP offers are as high as $460-$480 per ton, up over $100 per ton from Q2, this does not equate to aluminum prices necessarily surging. First, the MJP benchmark refers to the highest quality, most recognized brand aluminum ingots, which inherently carry a high premium. Second, sanctions on Rusal combined with Middle East conflicts have exacerbated the shortage of high-quality aluminum ingot supply. Finally, the MJP offers are not final prices, and subsequent negotiation outcomes still need to be monitored. Zhang Jiayi, a non-ferrous metals analyst at Guosen Futures, believes that if this offer price is ultimately accepted, it would signify a profound change in the pricing logic of the global aluminum trade. This record premium offer reflects a "decoupling of premium from the benchmark price" — factors such as logistics bottlenecks, energy costs, tariff barriers, and geopolitical risks are being systematically revalued outside of the LME benchmark price. This high premium essentially reflects that in the context of frequent supply disruptions, upstream industry leaders possess extremely strong pricing power, and the market is paying a high price for "security" and "uncertainty." The sharp rise in MJP offers may accelerate regional differentiation in global aluminum market pricing, making the "security premium" a part of long-term trade costs. Although the blockade of the Strait of Hormuz led to a 35% plunge in aluminum production in the Gulf region in April, the domestic Chinese aluminum market has not felt the impact of tightening overseas supply. According to Wang Guodong, since the outbreak of geopolitical conflicts in the Middle East, the domestic and overseas aluminum markets have been like "fire and ice." LME aluminum futures prices have continued to strengthen, while SHFE aluminum prices have remained range-bound. Social inventories of aluminum ingots in China are at historically high levels and difficult to draw down, while LME aluminum inventories and warrant volumes are at historical lows. "There are two main reasons for this phenomenon. First, domestic demand in Q1 was poor, with demand from new energy vehicles declining and photovoltaic demand experiencing a seasonal slump. Second, Middle East geopolitical conflicts have damaged their production capacity, directly widening the overseas primary aluminum supply gap. However, due to high export tariffs on aluminum ingots in China, the domestic supply-demand balance cannot be adjusted through primary aluminum exports, naturally putting pressure on domestic aluminum prices," Wang Guodong said. Zhang Jiayi believes that the impact of tightening overseas aluminum supply on China is more manifested as "indirect transmission" and "structural differentiation." China's primary aluminum industry has a relatively high degree of independence, with a high self-sufficiency rate in alumina and operating capacity approaching the 45 million ton "ceiling." Primary aluminum supply has not been directly impacted, but the import structure is changing: after the surge in overseas aluminum premiums, suppliers like Rusal have adjusted their sales strategies, reducing spot supply to China and prioritizing long-term contract supply to high-premium markets like Japan. This has led to a marginal tightening of primary aluminum imports into China, although long-term contract supply remains stable. Simultaneously, the "gap" is feeding back to the domestic market through exports — aluminum product exports from China have seen significant growth in recent months, with April exports of unwrought aluminum and aluminum products hitting a nearly one-year high. How Will SHFE Aluminum Prices Move Next? "Given the current situation, unless domestic social inventories of aluminum ingots continue to draw down significantly or the macroeconomic landscape changes, it will be difficult for SHFE aluminum prices to rise to the high level of $4,000 per ton," Wang Guodong believes. The sharp rise in LME aluminum prices has gradually widened the arbitrage space for aluminum stranded wire, leading to a significant increase in orders for related enterprises, and demand is expected to continue growing. However, policy risks need attention — the state encourages deep processing of primary aluminum. While export tax rebates for some aluminum products were canceled in December 2024, rebates for aluminum制品 (finished aluminum goods) were maintained, showing clear policy intent. Currently, the price spread between domestic and international aluminum is significant. As LME aluminum prices rise further, the likelihood of domestic aluminum prices rising in sync continues to increase. Zhang Jiayi believes it is less probable that domestic aluminum prices will, in the short term, break above the $4,000 per ton mark like LME aluminum futures. Although high overseas aluminum prices provide sentiment support for SHFE aluminum, domestic constraints from policy and fundamentals are stronger: the 30% export tariff on primary aluminum essentially blocks the transmission path for the price spread; domestic social inventories of aluminum ingots are at high levels; and downstream acceptance of high-priced material is limited. Therefore, SHFE aluminum is more likely to "take small, quick steps" to repair its valuation. After breaking through the 30,000 yuan per ton mark, it will face pressure from import/export restrictions and downstream negative feedback.
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