SHFE/LME Price Ratio Continued to Weaken, Aluminum Prices Were Expected to Fluctuate at Highs in the Short Term [SMM Aluminum Morning Meeting Summary]

March 13 SMM Morning Meeting Summary

Futures: On March 12, SHFE aluminum closed at 25,325 yuan/mt in the night session, up slightly 0.04%, consolidating narrowly at highs. Prices continued to run above all moving averages, with MA5 (25,122) and MA10 (24,830.5) in a firm bullish alignment, keeping the medium-term upward channel intact. On the MACD indicator, DIF (371.86) and DEA (250.67) maintained an upward-expanding golden cross, while the histogram stayed at a high level of 242.39, indicating ample bullish momentum. The recommended core trading range for SHFE aluminum is 25,100-25,500. LME aluminum closed at $3,533/mt, surging 2.20% and hitting another record high. Prices strongly broke above the 3,500 mark, far exceeding moving average systems such as MA5 (3,441.8), while the bullish alignment accelerated its expansion. On the MACD indicator, DIF (95.39) and DEA (61.01) saw the golden cross accelerate upward, with the histogram expanding to 68.76, showing continued strengthening upward momentum. The recommended core trading range for LME aluminum is 3,500-3,560.

Macro Front: Iran’s supreme leader Mojtaba Khamenei issued his first statement since taking office as supreme leader. The statement said Iran would not abandon retaliation and would continue to adopt strategic measures including blocking the Strait of Hormuz (Neutral ★). The US will launch two new trade investigations into “overcapacity in industrial production” involving 16 major trading partners including China. According to officials from the Office of the US Trade Representative, this could lead to new tariffs. In response, Chinese Foreign Ministry spokesperson Guo Jiakun said the so-called “overcapacity” is a false proposition, and China opposes using it as a pretext for political manipulation. The European Commission said it would make a “firm response” if the US violated trade agreements. (Neutral ★)

Fundamentals: After the holiday, downstream producers gradually resumed work, and demand for liquid aluminum continued to recover. As of this Thursday, the weekly proportion of liquid aluminum rebounded by about 1.2 percentage points WoW, end-use demand steadily repaired, and downstream operating rates further increased by 2.4 percentage points. Driven by the PV installation rush, operating performance remained strong; construction saw a slow post-holiday recovery, with extrusion operating rates rising MoM; supported by packaging orders, aluminum plate/sheet, strip and foil operating rates also rebounded this week. Affected by high aluminum prices and increased futures fluctuations, downstream procurement sentiment for aluminum ingot remained cautious. Inventory side, inventory as of Thursday increased by 23,000 mt from Monday, with aluminum ingots backlogged at stations continuing to arrive at warehouses, and the pattern of seasonal inventory buildup continued.

Primary Aluminum Market: The SHFE aluminum 03 contract fluctuated upward after opening yesterday. High aluminum prices suppressed downstream demand, and overall procurement demand remained weak, while market premiums continued to soften. Market premiums kept declining from the opening. Yesterday, mainstream transaction prices were concentrated at discounts of 20 yuan/mt to the average price. Yesterday, east China market shipment sentiment index was 3.32, up 0.05 MoM; the purchasing sentiment index was 2.57, down 0.09 MoM. Aluminum prices have risen for several consecutive days, and traders and downstream processing enterprises in the central China market showed weak buying sentiment. End-user clients were also less active in picking up goods, while downstream factories faced inventory buildup, with costs and operating rates constrained, only maintaining small-volume restocking for rigid demand or suspending restocking altogether. Meanwhile, suppliers showed a strong willingness to sell but weak willingness to hold prices firm. As a result, the mainstream actual transaction prices in the central China market were at discounts of 10-20 yuan/mt to central China prices. Yesterday, the central China market shipment sentiment index was 2.67, up 0.02 MoM; the purchasing sentiment index was 2.32, down 0.02 MoM.

Secondary Aluminum Raw Materials:Ongoing fluctuations in geopolitical risks drove spot primary aluminum up 230 yuan/mt yesterday from the previous trading day, and the aluminum scrap market followed higher across the board. As for the price difference between A00 aluminum and aluminum scrap, on March 12, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 3,980 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 3,066 yuan/mt. Against the backdrop of sharp aluminum price fluctuations, sentiment toward price adjustments varied across regions. East China followed the rise quickly, with single-day gains reaching 200-300 yuan/mt, while central China and south China adjusted prices by 100-200 yuan/mt on the day. Although the market is currently in the traditional peak season, affected by weaker-than-expected recovery in end-user orders and wild swings in prices, the production pace of China’s aluminum scrap yards and downstream scrap utilization enterprises remained lukewarm, and actual raw material restocking fell short of expectations. On the policy side, secondary aluminum enterprises lacked clear expectations for the specific implementation rules of “reverse invoicing,” and aluminum scrap circulation will tighten further. Aluminum scrap market is expected to fluctuate at highs and hold up well next week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) around 20,600-21,400 yuan/mt (excl. tax). Primary aluminum will remain the core driver under the influence of the geopolitical situation, with price fluctuation risks intensifying. On the supply side, cargo availability is being released steadily, but policy uncertainty continues to suppress circulation efficiency. On the demand side, peak-season recovery has been relatively slow, while high prices and wild swings continue to weigh on purchase willingness. In the short term, close attention should be paid to primary aluminum trends amid developments in geopolitical conflicts, downstream order recovery, and the implementation of recycling policies, while staying alert to the risk of a sharp high-level pullback.

Secondary Aluminum Alloy:On the futures side, the aluminum alloy 2604 contract surged to 24,285 yuan/mt in early trading yesterday, then pulled back quickly, touching an intraday low of 23,915 yuan/mt, and fluctuated at lows in afternoon trading. Overall, it showed a pattern of rising first and then weakening, with relatively large intraday volatility. In the spot market, yesterday’s quotes for secondary aluminum alloy ADC12 continued to edge higher, with gains mainly concentrated in the range of 100-200 yuan/mt. Supported by rising costs and bullish sentiment, secondary aluminum enterprises generally maintained some willingness to raise prices, but market transactions showed slight divergence: some enterprises reported stable orders, while others said high prices had begun to somewhat suppress downstream order-taking, with signs of marginal weakening in orders. Meanwhile, facing rapid price fluctuations, downstream enterprises have clearly turned more cautious in their procurement strategies, focusing mainly on just-in-time procurement and showing low willingness to build inventory. In the short term, against the backdrop of cost support and a mild release of supply, ADC12 prices are expected to hold up well.

Aluminum Market Summary:On the macro front, the situation in the Middle East remained deadlocked. Iran's supreme leader stated that the option of blocking the Strait of Hormuz would be retained, and escalating port threats suggested that supply chain risks still persisted. On the demand side, the steady post-holiday recovery continued, with the proportion of liquid aluminum and downstream operating rates continuing to rebound. Demand from the PV installation rush, packaging, and the power grid performed strongly, while construction extrusion also recovered slowly, providing solid support from the consumption side. Against the backdrop of continued tightening LME aluminum liquidity, LME aluminum still had upward momentum, with strong support from overseas prices, and was expected to maintain a backwardation structure in the short term. China, by contrast, remained in a phase of high inventory plus weak fundamentals, with upward momentum clearly weaker than outside China. Amid diverging domestic and overseas drivers, the SHFE/LME price ratio was expected to continue weakening, and aluminum prices were expected to continue fluctuating at highs in the short term.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make prudent decisions and should not use this as a substitute for their own independent judgment. Any decisions made by clients are unrelated to SMM.]