When the warning of a weekly surge of 93000 tons in LME (London Metal Exchange) aluminum inventory certificates met with Moody’s downgrade of the US sovereign rating, the global aluminum market is experiencing a dual strangulation of “supply and demand” and “financial storm”. On May 20th, aluminum prices approached the key support level of $2450 under the dual pressure of technical and fundamental factors, and the market was on edge – once this price level is breached, the flood of programmed trading selling may completely rewrite the short-term trend.

Inventory Movement: Malaysian Warehouse Becomes Empty ‘Ammunition Depot’

This week’s LME aluminum inventory data caused a market uproar: the weekly inventory of registered warehouses in Malaysia surged by 92950 tons, a month on month increase of 127%, marking the largest weekly increase since 2023. This anomaly directly distorted the spot premium structure of the aluminum market – the inverse price difference of the May/June contract (which is currently higher than the forward price) widened to $45/ton, and the cost of short extension surged to the highest point of the year.

Trader interpretation: “The abnormal movements in Malaysian warehouses may imply the manifestation of hidden inventory, combined with the influx of Chinese aluminum ingots into the LME system, short positions are using the pressure of extension costs to force long positions to cut losses. ”

Rating storm: Moody’s’ patching up ‘exacerbates liquidity panic

Moody’s downgraded the outlook for the US sovereign rating from “stable” to “negative”, which did not directly impact the fundamentals of the aluminum market, but triggered a short-term surge in the US dollar index, putting collective pressure on commodities denominated in US dollars. More importantly, the rating downgrade may push up the yield of US treasury bond bonds, indirectly raising the global financing costs, which is particularly fatal to capital intensive industries such as aluminum.

Analysts warn that under the expectation of tightening liquidity, the leverage position of CTA (commodity trading advisor) funds may become the biggest risk point. ”

Chinese variables: New high production vs. real estate winter

China’s primary aluminum production reached 3.65 million tons in April, a year-on-year increase of 6.7%, setting a new historical record. However, downstream real estate data presents a “double sky of ice and fire”: from January to April, the newly started housing area decreased by 26.3% year-on-year, and the growth rate of completed area slowed down to 17%. The traditional peak season of “gold, silver, and four” is not in good condition.

Supply and demand contradiction: On one hand, there is the blast furnace flame on the supply side, and on the other hand, there is the cold wind on the demand side. The Chinese aluminum market is trapped in a vicious cycle of “more production, more surplus”. A state-owned aluminum trader bluntly stated, “Now for every ton of aluminum produced, there is an extra brick in inventory.

Institutional Game: Did Mercuria’s “Russian Aluminum High Stake” encounter Waterloo?

Market rumors suggest that commodity giant Mercuria’s long strategy of heavily betting on the lifting of Russian aluminum sanctions is facing a severe test. With the expected easing of US sanctions on Russian aluminum and the pressure on LME inventory, its holdings may experience losses exceeding $100 million.

Traders reveal: “Mercuria’s predicament reflects the market’s repricing of geopolitical premiums, with aluminum prices returning from ‘war premiums’ to’ excess pricing ‘

Technical alert: The $2450 life and death line is facing the ultimate test

As of the close on May 20th, LME aluminum prices were at $2465 per ton, just one step away from the key support level of $2450. Technical analysts warn that if the price falls below this level, it will trigger large-scale stop loss selling by CTA funds, and the next target level may directly reach $2300.

Long Short Duel: The bearish camp uses the surge in inventory and weak demand as the spear, while the bullish camp focuses on high energy costs and green transformation demand as the shield. The outcome of this game may determine the direction of the aluminum market in the next six months.

Conclusion

From the “inventory bomb” in the Malaysian warehouse to the rating storm in Washington, from the “capacity surge” of Chinese aluminum plants to the “reckless gamble failure” of Mercuria, the aluminum market is standing at a crossroads not seen in a decade. The gain or loss of $2450 not only concerns the speed of programmatic trading, but also tests the recovery of the global manufacturing industry – the end of this metal storm may have just begun.