On the macro front, US President Trump stated that he did not believe he needed to extend the July 9 deadline he had previously set for countries to reach agreements with the US to avoid higher tariffs. Meanwhile, he accused Fed Chairman Jerome Powell of artificially keeping interest rates high and suggested that rates should be half of their current level or even lower. Fed Chairman Powell indicated that if it were not for President Trump's tariff policies, the Fed would have adopted a more accommodative monetary policy stance. Turning to domestic developments, according to the China Automobile Dealers Association, the inventory warning index for China's automobile dealers in June was 56.6%, down 5.7 percentage points YoY and up 3.9 percentage points MoM, indicating a decline in the prosperity of the automobile circulation industry. The Ministry of Commerce will organize the "New Energy Vehicle Consumption Season in Thousands of Counties and Towns" activity to continuously unleash potential and accelerate the cultivation of new growth points in automobile consumption. The National Bureau of Statistics (NBS) announced that in June, China's manufacturing, non-manufacturing, and composite PMIs were 49.7%, 50.5%, and 50.7%, respectively, with all three indices showing a rebound.
On the fundamentals side, domestic operating capacity for electrolytic aluminum remained at high levels, with the second batch of replacement projects in Yunnan province coming online and the industry's operating rate rebounding, while other projects remained inactive. In terms of the proportion of liquid aluminum, with a significant weakening of end-use demand and a notable inventory buildup of intermediate aluminum alloy products, production cut news emerged from Qinghai, central China, and other regions, forcing upstream aluminum smelters to increase casting ingot production, potentially pushing the proportion of liquid aluminum down to around 74%. On the cost side, spot alumina prices remained in the doldrums, with the real-time cost of electrolytic aluminum continuing to decline MoM, falling approximately 419 yuan/mt from last Thursday to 16,470 yuan/mt, while the real-time theoretical profit of electrolytic aluminum rose 669 yuan/mt MoM to 4,390 yuan/mt. On the demand side, entering July, the off-season atmosphere was strong across downstream sectors, coupled with high aluminum prices further suppressing operating performance. This week, the national operating rate for extrusions declined slightly by 0.5 percentage points MoM to 49.5%, with other sectors also experiencing varying degrees of decline and new orders generally weak. In terms of inventory, recent domestic overall aluminum ingot supply has increased, coupled with continued weakness in spot aluminum and outflows from warehouses, leading to an expected inventory buildup this week. According to SMM statistics, as of July 3, the inventory of electrolytic aluminum ingots at domestic mainstream consumption areas was 474,000 mt, an increase of 6,000 mt from Monday this week and 11,000 mt from last Thursday. Arrivals are expected to continue in early July, coupled with sluggish downstream consumption and slower cargo pick-up, SMM anticipates a steady to modest increase in domestic aluminum ingot inventory in early July.
Overall, on the macro front, domestic economic data in June performed well. In response to the declining consumption prosperity, favorable policies continue to be strengthened, with the direction of promoting consumption remaining unchanged. Uncertainty in overseas macroeconomic games has intensified, with the tariff deadline approaching on July 9th, leading to a stronger risk-averse sentiment in the market. On the fundamental side, casting ingot production has increased in some aluminum smelters. As July arrives, the downstream sectors are experiencing a strong off-season atmosphere. Coupled with the high aluminum prices further suppressing production performance, spot market transactions are not ideal. Aluminum ingot inventory has continued to build up, and spot premiums/discounts have weakened significantly. The real-time cost of aluminum has continued to decline MoM. Overall, the current low inventory still provides support for aluminum prices. However, under the triple pressures of inventory buildup expectations, weakening consumption, and macroeconomic uncertainty, it is expected that the short-term aluminum prices will face increased pressure at high levels, with upside potential remaining but relatively narrow. Subsequent attention should be paid to the casting ingot production and inventory changes. SMM forecasts that the most-traded SHFE aluminum 2508 contract will trade within the range of 20,300-21,000 yuan/mt next week, while LME aluminum will trade within the range of $2,550-$2,660/mt.
