Aluminum Market Analysis: Macro Tailwinds vs. Inventory Pressure (Latter Half of August 2025)

The aluminum market is currently in a complex tug-of-war. On one hand, favorable macroeconomic factors, both domestic and international, are supporting prices. On the other hand, fundamental factors, particularly weak off-season consumption and rising inventories, are creating significant pressure. After the positive sentiment is digested, aluminum prices face a risk of a downward correction, with the key resistance level of 21,000 yuan/mt still under pressure. For the upcoming week, SHFE aluminum is expected to trade within the range of 20,400-21,000 yuan/mt, while LME aluminum is forecast to trade between $2,570-$2,660/mt.

Macroeconomic Backdrop: The Tailwinds

Recent global economic news has fostered market optimism. In the United States, the July Consumer Price Index (CPI) rose by 0.2% month-on-month, in line with expectations and slowing from June. The year-on-year inflation rate held steady at 2.7%, below the market forecast of 2.8%. This mild inflation data has solidified expectations for a US Federal Reserve interest rate cut in September, with market bets increasing for further easing policies later this year.

Additionally, reports from the China-US economic and trade talks in Stockholm, suggesting an agreement to suspend the 24% tariffs for another 90 days, have eased market uncertainty. Domestically, the Chinese government continues its supportive policies, with numerous provinces establishing state-owned asset M&A funds to strengthen and supplement local industrial chains, acting as a "ballast stone" for economic stability.

Fundamental Analysis: Pressure from a Supply-Demand Mismatch

In contrast to the bright macroeconomic picture, the fundamentals of the aluminum industry reveal several concerning signs.

1. Supply Remains High and Stable: China's domestic aluminum operating capacity remains at high levels, especially after the second batch of replacement projects in Yunnan came online. Production costs have seen minimal changes, with the real-time cost of electrolytic aluminum at 16,738 yuan/mt. This allows the industry to maintain a very high theoretical profit of around 3,951 yuan/mt, incentivizing smelters to keep output high.

2. Weak Downstream Demand Recovery: Although the September-October peak season is approaching, demand recovery remains sluggish. The operating rate of the aluminum extrusion industry saw a slight weekly increase of 1 percentage point to 50.5%, mainly due to new orders from the automotive and photovoltaic sectors. However, the construction extrusion sector, a major consumer, remains sluggish with no signs of a turnaround. Growth in previously strong sectors like home appliances and PV has slowed, and some export orders have also declined.

3. Inventories Continue to Build: This is the direct consequence of the strong supply and weak demand dynamic. According to SMM statistics on August 14, aluminum ingot inventory in China's main consumption areas stood at 588,000 mt, an increase of 24,000 mt from the previous week. Warehouse outflows have not shown signs of strengthening, and the inventory buildup trend is expected to continue until the end of August. SMM predicts that inventory may rise to around 600,000-650,000 mt by late August.

Market Outlook

Overall, the aluminum market is caught between conflicting influences. Macroeconomic optimism is preventing a sharp price drop, but the mounting pressure from rising inventories poses a significant barrier to further gains. Investors should be cautious as the positive sentiment from macro news is gradually priced in, as aluminum prices may face a "rise first, fall later" scenario. A genuine price recovery will depend on a tangible improvement in end-use demand as the market enters its traditional peak season.