Key Moments
- Aluminum prices extended gains for a second straight session after rebounding from a four-month low, driven by renewed buying interest in China.
- China’s aluminum spot inventories declined for a twelfth consecutive session to 1.09Mt, more than 25% below their April peak, reinforcing expectations of a market deficit this year.
- Speculative net long positions in LME aluminum dropped by 14,891 lots to 53,923 lots in the week ending 3 July, the lowest level since May 2019.
Deficit View Underpins Price Recovery
ING analysts Warren Patterson and Ewa Manthey report that aluminum has continued to advance after recently touching a four-month low, with lower price levels prompting renewed buying from Chinese participants. They highlight that aluminum came under pressure in the prior week as production capacity in the Middle East returned more quickly than anticipated following the ceasefire.
However, they note that the overall balance is still expected to be tight, stating that “the market is still expected to remain in deficit this year.” This deficit outlook is providing fundamental support to the recent rebound, even as supply conditions in the Middle East stabilize.
Chinese Inventories Decline for Twelfth Session
According to the analysts, a key support for the constructive view on aluminum is the ongoing drawdown in Chinese spot inventories. They state that “China’s aluminium spot inventories fell for a twelfth consecutive session to 1.09Mt, more than 25% below their April peak.” This sustained inventory decline underscores improving demand or constrained supply in the Chinese market.
In addition, they point out that “renewed attacks on vessels near the Strait of Hormuz added to shipping risk concerns,” introducing an additional layer of uncertainty on the logistics side that could influence regional supply flows.
| Market Indicator | Latest Value / Description | Comment |
|---|---|---|
| Price action | Extended gains for a second session after a four-month low | Recovery supported by Chinese buying |
| China spot aluminum inventories | 1.09Mt | Twelfth consecutive daily decline; over 25% below April peak |
| Market balance outlook | Expected deficit this year | Despite faster Middle Eastern supply recovery |
| Speculative net long positions in LME aluminum | 53,923 lots (week ending 3 July) | Down 14,891 lots; lowest since May 2019 |
| Geopolitical/shipping risks | Renewed attacks near the Strait of Hormuz | Adding to shipping risk concerns |
Speculative Positioning Hits Multi-year Lows
While physical and inventory fundamentals appear supportive, speculative positioning in aluminum has weakened. The analysts cite the latest COTR data, noting that “speculative sentiment continued to soften.” They report that “net long positions in LME aluminium fell by 14,891 lots for a fourth consecutive week to 53,923 lots in the week ending 3 July, the lowest level since May 2019.”
This four-week streak of reductions in net long positions signals a more cautious stance among speculative traders, even as the underlying market is described as remaining in deficit and Chinese inventories continue to decline.
Balancing Supply Recovery and Risk Factors
The report underscores the contrast between recovering Middle Eastern supply and persisting signs of tightness in other parts of the market. Aluminum had been weighed down when production in the Middle East came back faster than expected following the ceasefire, but the analysts emphasize that this has not fully offset the broader deficit outlook for the year.
At the same time, ongoing draws in Chinese inventories and elevated shipping risks near the Strait of Hormuz are contributing to a more constructive tone for prices, even as speculative market participants pare back long exposure.
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