Over the past two months, domestic aluminum prices have experienced a volatile, range-bound pattern characterized by an initial decline followed by a subsequent rebound. In late June, the main contract of Shanghai aluminum futures briefly touched a stage low of 22,000 yuan/ton, before gradually recovering to around 24,000 yuan/ton by the end of July. Meanwhile, LME aluminum prices retreated after hitting near-four-year highs in early June, narrowing the price spread between domestic and overseas markets.
Behind these price fluctuations lies a complex interplay of multiple factors. Changes on the supply side have been the core driver. In the first half of the year, geopolitical conflicts in the Middle East led to production cuts and shutdowns of 2.39–2.58 million tonnes of local capacity, while shipping through the Strait of Hormuz was obstructed. Overseas aluminum supply remained persistently tight, with LME inventories once hitting a historic low of 266,300 tonnes, providing solid support for prices. However, since June, three supply-side headwinds have gradually emerged: first, market concerns over potentially stronger-than-expected production growth in China; second, rapidly ramping up new smelting capacity in Indonesia, with annual output expected to exceed 2.2 million tonnes this year; and third, the possibility of a concentrated release of 500,000–1 million tonnes of accumulated inventories from the Middle East. These expectations have significantly weighed down the premium previously driven by geopolitical tensions.
Shifts in the macro narrative have dominated the price rhythm. Since late May, stronger-than-expected U.S. inflation data have fueled market expectations of an imminent Fed rate hike within the year, driving the U.S. dollar index higher and exerting systemic pressure on the non-ferrous metals complex. The market’s trading focus has thus shifted from geopolitical risks to valuation corrections under tightening liquidity expectations. The excessive risk premium accumulated during earlier geopolitical events has been rapidly unwound amid these macro headwinds.
At the same time, domestic fundamentals present a pattern of “stable internal demand, strong external demand.” Domestic electrolytic aluminum capacity has already hit the 45-million-tonne capacity ceiling, rendering supply rigid and inelastic. Although demand from the property sector remains relatively weak, robust demand from the automotive, power cable, and other sectors, coupled with exceptionally strong aluminum product exports (China’s exports of unwrought aluminum and aluminum products surged 45.4% year-on-year in June), has effectively offset domestic demand pressures. Smooth inventory destocking in the social warehouses has further provided a floor for prices.
