Shanghai Aluminum "Rises sharply then falls": the shadow of "stagflation" under soaring oil prices + pressure from high domestic inventories

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Yangtze River Nonferrous Metals Network

【Market Review】

On March 17, the aluminum market experienced a typical “internal and external divergence” and “futures and spot deviation.”

The overseas London aluminum traded relatively strongly amid geopolitical tensions, holding steady above $3,400 per ton; meanwhile, the main Shanghai aluminum 2605 contract showed a “heartbeat” pattern—initially plunging at the open, then rebounding strongly, only to dip again in the afternoon, closing down 0.40% at 24,990 yuan/ton.

In the spot market, Yangtze River spot A00 aluminum ingots rose by 110 yuan/ton, with an average price of 24,900 yuan/ton, but the discount did not narrow, and trading sentiment showed a clear “hot then cold” pattern.

Why, amid a looming overseas supply crisis, is the rise of Shanghai aluminum so “hesitant,” even ultimately losing momentum?

1. Macro Headwinds: The Shadow of Stagflation Amid Oil Price Surge

The primary reason for the pause in Shanghai aluminum’s rally stems from macro-level “double kills.”

Inflation fears re-emerge: Brent crude oil prices return above $100 per barrel, with the risk of Strait of Hormuz blockades sharply increasing energy costs. For energy-intensive electrolytic aluminum, this is both a cost support and a demand poison. The market begins to trade the logic of “high oil prices suppress global economic growth,” and risk appetite cools rapidly.

Dollar rebound: Ahead of the March Federal Reserve meeting, although interest rates are expected to remain unchanged, hawkish statements by officials and risk aversion triggered by geopolitical tensions have driven the dollar index higher. As a dollar-denominated commodity, aluminum prices face direct selling pressure from financial factors.

2. Core Contradiction: Overseas “Supply Disruption” Expectations vs Domestic “Stockpile Accumulation” Reality

This is the fundamental reason for Shanghai aluminum’s “strong outside but weak inside.”

1. Overseas supply crisis imminent

Guinea (accounting for 40% of global bauxite) plans to implement export quotas; Iran conflicts threaten Strait of Hormuz blockades; Bahrain aluminum production reduced by 19%; Qatar capacity limited; Mozambique smelters halted… a series of “black swan” events have filled the overseas market with fears of “raw material shortages.” The firmness of LME aluminum prices reflects market expectations of “short-term shortages.”

2. Domestic inventory high pressure

Stable capacity: Domestic electrolytic aluminum capacity remains relatively stable without significant fluctuations.

Inventory surge: As of March 16, domestic social inventory reached 1.345 million tons, a significant increase from last Thursday. During the early peak season of “March to April,” inventories are rising instead of falling, signaling bearish sentiment.

Logic invalidation: High inventory directly contradicts the short-term logic of “demand explosion during peak season.” When warehouses are full of aluminum ingots, any positive overseas news struggles to drive domestic prices significantly higher.

3. Market Dynamics: Why “Shift from Strength to Weakness”?

Today’s market movements reveal the dilemma faced by funds amid these contradictions.

Morning rebound: Stimulated by overnight overseas gains and Guinea production restrictions, bulls attempted to push prices higher, with downstream buyers also replenishing stocks on dips, driving prices up.

Afternoon plunge: As trading deepened, focus shifted back to high domestic inventories and high spot discounts.

In the spot market, sellers took advantage of the price rise to offload stocks, quickly easing liquidity. When prices exceeded 25,000 yuan, downstream buying interest dropped sharply, and the “high price, no market” phenomenon reappeared.

Funds, before inventory turning points, cannot sustain price increases based solely on news; profit-taking led to a pullback, putting pressure on the market.

4. In-Depth Analysis: Guinea Policy “Distant Water” Cannot Quench “Immediate Thirst”

Regarding Guinea’s production control policies, the market should view rationally:

Long-term benefits: As a resource-rich country, Guinea’s volume control to stabilize prices can reshape the global bauxite supply-demand balance, providing long-term support for aluminum prices.

Short-term lag: From policy announcement to implementation and its impact on domestic alumina and electrolytic aluminum production, there is a clear time lag (usually 1-2 months).

Conclusion: In the current “time window,” Guinea’s benefits are “distant water,” while domestic inventory of 1.345 million tons is “immediate thirst.” Until inventories are substantially reduced, the long-term supply story is unlikely to ignite a short-term rally.

5. Market Outlook: Waiting for a “Breakthrough” Signal

Overall, Shanghai aluminum faces a situation of: costs and geopolitical support below, inventories and macro pressure above.

Short-term trend: Aluminum prices are expected to fluctuate within a high range of 24,500-25,500 yuan/ton. If inventories continue to accumulate, breaking through 25,500 yuan will be difficult; if prices fall below 24,500 yuan, low-cost support and overseas production cuts may attract buyers.

Key turning points:

• Inventory inflection point: Pay close attention to next week’s social inventory data. If peak season effects cause inventories to decline sharply, it will signal a bullish turnaround.

• Geopolitical escalation: If Strait of Hormuz blockade causes actual logistics disruptions, or Guinea policies tighten beyond expectations, a new short squeeze could be triggered.

• Macro fundamentals: Post-Fed statements and actual domestic fiscal policy fund deployment.

【Trading Strategy】

For industry clients, it is advisable to use rebounds to sell and hedge, locking in processing profits and avoiding inventory devaluation risks; for speculative investors, avoid one-sided thinking, adopt “range trading, buy low and sell high” strategies, and do not blindly chase prices at high inventory levels.

Overall, this game in the aluminum market is essentially a tug-of-war between “overseas expectations” and “domestic reality.” Under high inventory conditions, the upside for Shanghai aluminum will be limited. It is expected that aluminum prices will need a supply-demand mismatch correction before potentially entering a trendful upward phase.

Disclaimer: This article is based on publicly available data and market information analysis and does not constitute specific investment advice. Markets are risky; please proceed with caution.