May nineteenth, two thousand twenty-six
《A Quick Update on Aluminium》
《Aluminium: A Quick Update》
Author: Ariston
X ｜
Custom models by direct message (currently, custom daily models are available only for the Chinese and U.S. stock markets)
WeChat: AristonMacro (when adding please note your institution + name, requests without a note will not be approved）
DM for custom models
Aluminium: Still Above a Key Bull-Bear Price Level
The aluminium market no longer needs strong demand growth to remain structurally tight. Following disruptions in the Middle East, supply flexibility across the system has diminished as Chinese supply remains capped and growth in supply outside China is insufficient to offset the persistent supply shortfall.
Unlike previous cyclical downturns, when weak demand and an eventual supply response eased the market, the current shock is supply-driven, and most of the damage is already done. Even with weak demand, the supply deficit this year will reach ~2.7 million tonnes. Only a severe recession on the scale of the Volcker-era recession or the global financial crisis of 08/09 would likely be severe enough to stabilize inventory coverage.
Importantly, persistent deficits cannot remain merely theoretical. If consumption exceeds production, the imbalance must be absorbed through inventory drawdowns. This is now the central issue facing the market. Initially, deficits can be absorbed through hidden, financed, merchant, and pipeline inventories. As a result, tightening cycles are usually volatile and slow-moving, and driven by macro factors rather than an immediate breakout. Over time, inventory drawdowns change market structure as buffer stocks shrink and short hedges associated with financing and holding costs are unwound.
This tightening does not require sustained speculative long accumulation. As buffer stocks shrink and hedges are unwound, the market becomes more exposed even without new long positioning. Under these conditions, relatively small shortfalls can trigger disproportionate, nonlinear price responses.
Chart: Past idle capacity in China’s aluminium industry has been largely exhausted, affecting aluminium prices and supply flexibility
The same is true on the demand side. Aluminium demand today is less cyclical than it used to be.In the past, aluminium demand relied more heavily on real estate, traditional manufacturing, and the general industrial cycle. Now, a larger share of demand growth comes from power grids, renewable energy infrastructure, and electrification supply chains. The CAET end-use tracker shows that energy-transition-related demand is already close to a quarter of Chinese aluminium demand. This part of demand receives more policy support and is less sensitive to a traditional economic slowdown. China’s share of global aluminium demand is also now close to 60%. In global shocks similar to 08-09, ex-China markets tend to bear more of the cyclical demand decline, while Chinese demand is relatively more stable. As long as China does not suffer a deep slowdown, global aggregate demand is less likely to fall sharply. Downside elasticity on the demand side is lower than in past recessions, so weakening demand has less power to weigh on prices.
Chart: The substitution thesis breaks down
The substitution thesis is likewise unlikely to cap aluminium prices quickly.The relative prices of copper to aluminium and plastic to aluminium remain high, so many end users will not switch materials on a large scale immediately just because aluminium prices rise. The copper-aluminium price ratio is in a historically high range, and the incentive to substitute aluminium remains in place across multiple end-use applications. On the plastics side, naphtha is used as a proxy, and competing materials themselves are not cheap.
The steel-to-aluminum price ratio has risen quite high in China. The economics of substitution for some materials within China have become rather extreme, while ex-China markets have not reached the same point. Downstream buyers are facing a world where multiple substitute materials are all similarly expensive, so broad substitution away from aluminum will not happen as quickly as in past cycles.
...
This is why aluminum’s upside convexity remains strong despite macroeconomic headwinds. Although short-term volatility and position reduction may put pressure on prices, downside appears increasingly limited except in the event of a severe recession.
Chart: CMX aluminum (daily chart, as of 260519)
After we went long aluminum near the bottom previously, it currently 1) remains firmly above the daily swing long/short price line, while 2) funds are returning to leveraged positions.A breakout here above 3600 would trigger another leg higher.Set your own alerts and keep an eye on it.
...
End of full text.
End of full text.
The companion U.S. equities, A/H shares, and commodities channels cover additional market detail and are still being continuously expanded:
The companion U.S. equities, A/H shares, and commodities channels cover additional market detail and are still being continuously expanded:
U.S. equities:https://www.meridianresearch.app/home?product=us-strategies
U.S. equities: https://www.meridianresearch.app/home?product=us-strategies
A/H shares:https://www.meridianresearch.app/home?product=asia-strategies
A/H shares: https://www.meridianresearch.app/home?product=asia-strategies
Commodities:https://www.meridianresearch.app/home?product=commodity-strategies
Commodities: https://www.meridianresearch.app/home?product=commodity-strategies
Note: All content in this document is for reference only. It does not constitute any investment advice, nor does it serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on such information as the basis for decision-making.
Note: All content in this document is for reference only. It does not constitute any investment advice, nor does it serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on such information as the basis for decision-making.