[Overseas Macro Bullishness Battles Supply Bearishness, China's Destocking Supports SHFE Aluminum Bottom] On the domestic front, bullish factors are prominent. The proportion of liquid aluminum has continued to rise. Over the past week, aluminum ingot warehouse withdrawals hit a four-year high, and the pace of inventory destocking has accelerated significantly, forming support for the bottom of SHFE aluminum. Amid the interplay of bullish and bearish factors, overseas, the bullish impact of the US dollar and the bearish forces from supply and geopolitics offset each other. After its earlier excessive decline, LME aluminum's downward momentum has slowed, and in the short term, it is mainly consolidating at lows for repair; domestically, supported by rapid destocking, the probability of underperforming LME aluminum is low. The SHFE and LME markets may show slight divergence, and a sustained unilateral weak trend is unlikely.

[SMM Cast Aluminum Alloy Morning Comment: Aluminum Alloy Futures Rebound Continuously; Spot Cargo Transactions Dominated by Rigid Demand] Recently, ADC12 prices outside China continued to decline, with quotes today pulling further back to the $3,100-3,200/mt range. Meanwhile, China's ADC12 prices remained relatively firm, supported by aluminum scrap costs, driving a continuous recovery in the price spread between Chinese and overseas markets and further narrowing import losses. Currently, the import loss per mt of ADC12 is about 1,087 yuan, having pulled back to early-March levels.

The gap between Q3 QMJP offers and actual transaction prices in the Japanese market has widened significantly. At present, the physical spot premium for primary aluminum ingots in Japan stands at USD 395 per metric ton, representing an increase of USD 43.5 per ton versus Q2. Nevertheless, overall market sentiment remains bearish, with spot transactions oscillating around the USD 385 per ton mark. The dual pressures from supply and demand fundamentals constitute the core driver behind the softening spot premium in Japan. On the supply side, market expectations for growing global aluminum supply surplus have intensified steadily. In addition, steady progress has been made in resuming aluminum production capacity in the Middle East, reinforcing expectations of rising overseas supply and capping upward room for spot premiums. On the demand side, Japan has entered its traditional seasonal lull in consumption as scheduled. Downstream end-users have slowed purchasing activity amid sluggish demand, gaining stronger bargaining power and shifting the supply-demand negotiation dynamic firmly in favor of buyers. As a result, the spread between QMJP ingot offers and physical transaction prices in Japan ranges from USD 65 to 70 per ton. Following the official release of Q3 QMJP pricing, spot offer prices in Japan firmed up temporarily, yet this failed to boost trading volumes, leaving the market locked in a stalemate between bulls and bears. Amid persistent expectations of expanded supply, the temporary firmness in spot prices is projected to give way to corrective declines. The bearish overall trend for Japanese aluminum ingot premiums in Q3 is unlikely to reverse. In other regional markets, trading activity in the spot aluminum ingot markets of Thailand and South Korea remained extremely muted this week with subdued overall liquidity. In the early week, ahead of the official publication of Q3 QMJP benchmarks, both traders and downstream manufacturers adopted a wait-and-see stance, limiting inventory restocking strictly to immediate operational needs. After the latest Q3 QMJP prices were released, benchmark levels fell short of pre-market consensus forecasts, prompting sellers across Southeast Asia and South Korea to lift their asking prices. Actual trading data, however, shows downstream buyers in Thailand and South Korea continued to purchase only to cover rigid demand, lacking substantive demand support. Spot premiums and discounts have thus remained range-bound at elevated levels. In the short term, resuming Middle Eastern smelter capacity and incremental overseas aluminum supply will continue to cap premium upside, compounded by weak seasonal end-user demand that adds further downward pressure to the market. Asian spot aluminum ingot premiums and discounts are therefore expected to maintain divergent, softening momentum, marked by volatile asking prices and persistently thin physical trading volumes in the near term.

SMM News, July 3: Today, SMM A00 spot aluminum prices closed at 22,760 yuan/mt, up 220 yuan/mt from the previous trading day, and aluminum scrap prices largely followed suit. The supply side remained tight as supervision over the "reverse invoicing" policy continued to tighten. Production cuts and shutdowns spread among small and medium-sized scrap utilization enterprises in Anhui, Jiangxi, Hubei and other regions, and Shandong also heard news of suspending reverse invoicing from July, further increasing the scarcity of compliant invoiced aluminum scrap. Regarding price spreads, on July 2, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was recorded at 1,931 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 623 yuan/mt. Notably, under the dual pressure of rapidly declining aluminum prices and tight invoice availability, the price spread for aluminum tense scrap narrowed sharply. Some cast aluminum alloy enterprises have begun using A00 aluminum ingots as a substitute for aluminum scrap as raw material. On the import side, besides low port arrivals in June-August due to the 1-3 month shipping lag, the UAE's four-month temporary export ban on aluminum scrap starting in June and the EU's proposed 15% tariff from September have significantly strengthened expectations of shrinking overseas high-quality scrap supply, and the import supply chain will suffer substantial damage. The aluminum scrap market is expected to continue to consolidate at low levels, but the downside room for prices is limited. The mainstream range of shredded aluminum tense scrap prices based on aluminum content is projected at 19,200-19,800 yuan/mt (tax excluded). Supply side, the constraints from the reverse invoicing policy are unlikely to reverse in the short term, and the tight supply of compliant invoiced cargo will persist. Import side, multiple headwinds will gradually materialize in the form of depressed actual port arrivals in the coming months, and the supply of imported aluminum scrap will weaken further. Demand side, amid the deepening off-season, downstream operating rates remain low, end-user orders are unlikely to see substantial improvement, and scrap utilization enterprises will likely continue their strategy of purchasing as needed and maintaining low inventories. The price spread between aluminum scrap and primary aluminum has narrowed to a historical low, significantly eroding the economic advantage of scrap over primary aluminum. If aluminum prices continue to fall, the substitution effect will accelerate and become more evident.

[Weekly Review of Aluminum Scrap and Secondary Aluminum]Primary-Scrap Spread Narrows Sharply as ADC12-A00 Premium Hits a Record High: Has the Window Opened for Primary Aluminum to Replace Scrap?

SMM, July 3: In early June, according to public information, the Kazakh Prime Minister met with the Vice Chairman of Xinfa Group. Xinfa expected that, based on its entire industry chain industrial park construction plan, the project will create a highly integrated production system, achieving full chain production from raw materials to high value-added aluminum products by deeply processing bauxite. After the project is put into operation, the annual alumina capacity is expected to reach 4.8 million mt and the aluminum capacity 2.4 million mt. With the announcement of this project, according to SMM's tally, total planned aluminum capacity outside China for 2026 and beyond reaches 20.72 million mt. (including a small amount of capacity that came online in 2025) Of this, in 2026, total planned aluminum capacity to be commissioned outside China is about 2.3 million mt, of which about 700,000 mt has been commissioned, and the remaining 1.6 million mt is expected to be commissioned in H2 2026. In 2027, 3.555 million mt of new capacity is planned to be commissioned, with Indonesia accounting for about 67.5%. The cumulative planned new capacity from 2026 to 2027 is about 5.855 million mt, accounting for 28.3% of the total planned capacity for 2026 and beyond.