While precious metals tumbled sharply in response to the Fed Chair's hawkish remarks, aluminum bucked the trend, holding up relatively well and even exhibiting intermittent strength.
On August 28, Federal Reserve Chairman Kevin Warsh, who had been in office for approximately 100 days, delivered his first full policy framework speech at the Jackson Hole central banking conference. He clearly stated that the Fed's current primary task remains price stability, inflation needs to return to the 2% target, and room remains for further rate hikes in the coming months. On the same day, U.S. Treasury yields rose, the precious metals sector tumbled, and gold futures fell by more than 3%. However, aluminum diverged significantly from gold and silver.
This divergence does not imply that macro factors no longer matter to aluminum prices. Rather, it is because the current macro pressure remains largely at the expectation level, while fundamental changes such as spot tightness and declining inventories have become realities that can be observed.
Warsh's speech served as forward guidance on the future policy direction, but it does not equate to a rate hike decision being finalized. The speech conveyed the Fed's emphasis on inflation risks and the possibility of further monetary tightening, but it did not eliminate the uncertainty surrounding the future policy path. Especially when the market still has significant divergence on whether subsequent rate hikes will occur, the marginal information provided by a single hawkish speech is relatively limited. It merely increases the probability of certain policy scenarios rather than clearing the uncertainty all at once.
When hawkish signals have not yet translated into substantive policies, and the tight supply and demand in the aluminum market are already well-supported by data, fundamentals provide a clear hedge against macro headwinds. Specifically, the support for current aluminum prices mainly comes from the following three aspects.
Inventories are the core supporting variable for aluminum's current strength, with domestic and foreign inventories showing a synchronized decline. According to Mysteel's data, as of the end of August 2026, China's traders' inventory of aluminum stood at 809,000 tonnes, a decrease of 122,000 tonnes from the end of July; SHFE aluminum inventory was 241,700 tonnes, down 78,500 tonnes from the end of July; LME aluminum inventory was 246,700 tonnes, a drop of 17,700 tonnes from the end of July.
In contrast, these inventories all accumulated to varying degrees in August 2025. August is typically the off-season for aluminum consumption, and seasonal inventory buildup is the conventional market expectation. However, under the same seasonal backdrop this year, inventories not only did not accumulate but declined across the board, indicating that the actual supply and demand situation was significantly stronger than the market had previously expected.
From the consumption side, since August 2026, the weekly consumption of molten aluminum converted into billets has gradually recovered. During the aluminum price correction, downstream enterprises seized the opportunity to purchase reasonably priced sources, driving a rebound in the output of primary aluminum processed products. The counter-seasonal inventory decline showed that current demand was not simply staying at the level of peak season expectations but has already manifested as actual consumption and inventory drawdowns. The continuous destocking during the "sluggish off-season" further confirmed the tight balance in the current aluminum market and constituted the most direct support for aluminum's resilience.
Since early July, aluminum prices have generally shown a volatile upward trend, but the spot basis in the three major regions has not significantly weakened with the rising futures prices. In particular, the premium in the Foshan region in South China has continued to rise.
According to conventional logic, consecutive rises in futures prices usually suppress downstream purchasing enthusiasm and prompt traders to increase sales, thereby compressing spot premiums or even pushing the basis weaker. However, in this round of futures price hike, the basis not only did not narrow but remained firm against the trend and even strengthened further in some areas. This reflects that deliverable and tradable spot goods were tight, and the supply-demand contradiction in the spot market was quite prominent.
Especially in Foshan, due to limited arrivals, continuous inventory drawdowns, and resilient rigid downstream procurement, the traders had a strong willingness to hold the prices firm, and spot premiums have been moving upward. It should be noted that short-term reluctance to sell or controlled shipments by traders can amplify premiums, but it is difficult to maintain basis strength for a long time. The fact that the basis in the three regions remained firm indicates that there was still support from real consumption and continuous destocking behind it, rather than just a phased price-supporting behavior on the supply side.
Rising expectations for the "Golden September and Silver October" peak season have added a forward demand tailwind to the aluminum market. As the consumption off-season gradually transitions to the traditional peak season, marginal improvements have already appeared in downstream orders and production schedules.
According to Mysteel's research, some primary aluminum processing enterprises began negotiating September orders and production schedules in August. For some varieties, large enterprises have even scheduled orders until mid-October, indicating that peak season demand has started ahead of time and market confidence in subsequent consumption recovery has strengthened.
Although order performance still varies among different end-market sectors and enterprises of different scales, the high production scheduling among leading enterprises is expected to gradually transmit to the upstream and downstream of the industrial chain, driving raw material procurement and the release of rigid restocking demand.
Against the backdrop of limited supply increments and low inventories, if peak season demand materializes as expected, the pattern of tight spot circulation may continue, thereby further supporting aluminum prices and spot premiums.
The real risk to aluminum prices still lies on the macro front, and the moment expectations turn into reality could trigger a policy-driven correction. It must be emphasized that macro remains the biggest source of uncertainty. The reason why fundamentals can currently hedge against the suppression from hawkish speeches is that the Fed has not yet substantially raised interest rates, or rather, the expectation of rate hikes has not become further confirmed and elevated, as long as this premise holds, the triple fundamental logic of strengthening basis, inventory drawdown, and peak season expectations is sufficient to support aluminum prices maintaining their strength or even continuing to rise.
However, if subsequent rate hikes are actually implemented, macro pressure will transform from expected disturbance into policy fact. At that time, the US dollar and US Treasury yields may strengthen further, global liquidity and market risk appetite will come under pressure, and aluminum prices may experience a periodic correction along with the industrial metals market. Nevertheless, under the support of low inventories, a strong basis, and improving peak season demand, the downside room for aluminum prices may be relatively limited.
Written by Regina WANG
wangjiaqie@mysteel.com
