Easing China-U.S. Trade Tensions Combined with Ex-China Supply Gaps, LME Outperforms SHFE for Aluminum Prices [SMM Aluminum Morning Meeting Minutes]

5.18 SMM Morning Meeting Minutes

Futures:SHFE aluminum closed at 24,305 yuan/mt, down 0.94%. The price fell below all key moving averages (MA5=24,556, MA10=24,529, MA30=24,361, MA60=24,584.5), forming a bearish alignment with clear short-term weakness. The MACD indicator showed DIF=-68.9, DEA=-20.17, with negative histogram bars expanding to -97.46 after a death cross, indicating continuously strengthening bearish momentum. Trading volume shrank to 63,900 lots, suggesting easing selling pressure but insufficient buying interest. The recommended core trading range for SHFE aluminum is 24,000-24,500. LME aluminum closed at $3,556/mt, down 0.45%. The price fell below MA5 (3,602.4) and MA10 (3,569.7) but remained slightly above MA30 (3,552.17), under short-term pressure but still supported by the medium-term moving average. The MACD indicator showed DIF=33.04, DEA=36.18, forming a death cross at high levels with the histogram turning negative (-6.29), indicating exhaustion of upward momentum. The recommended core trading range for LME aluminum is 3,530-3,580.

Macro Front:A spokesperson of China's Ministry of Commerce answered reporters' questions on the preliminary outcomes of China-US economic and trade consultations, stating that the preliminary outcomes reached by both sides in the economic and trade area mainly include the following aspects: First, both sides will continue to implement the outcomes of previous consultations and have reached a positive consensus on relevant tariff arrangements. Second, both sides agreed to establish a Trade Council and an Investment Council to discuss their respective concerns in trade and investment. Both sides will discuss issues such as tariff reductions on relevant products through the Trade Council, and agreed in principle to reduce tariffs on products of concern to each side on an equal scale.

Fundamentals:Ex-China, amid Middle East conflicts, overseas aluminum exhibited a rigid supply gap, which drove LME inventory to continue destocking. As of last Wednesday, LME inventory decreased by approximately 11,700 mt YoY to 346,500 mt. The LME aluminum Cash-3M premiums structure continued to deepen. In China, as of this Monday, SMM aluminum social inventory stood at approximately 1.435 million mt, an inventory buildup of approximately 7,000 mt compared with last Thursday, with inventory remaining at elevated levels and continuing to weigh on aluminum prices.

Primary Aluminum Market:Last Friday, the SHFE aluminum 2606 contract fluctuated downward, with the overall price center moving significantly lower compared with the previous trading day. Market purchasing sentiment remained weak. Affected by the sharp decline in aluminum prices, some sellers showed strong sentiment to hold prices firm. Mainstream spot cargo quotations in the market ranged from SMMA00-10 yuan/mt to -20 yuan/mt. The east China market shipments sentiment index was 3, flat MoM; the purchasing sentiment index was 2.83, up 0.03 MoM. Futures aluminum prices pulled back significantly from the previous day's morning session. Combined with it being a Friday, stockpiling sentiment among downstream processing enterprises in the central China market recovered somewhat, and overall market trading activity improved, though suppliers' shipment sentiment edged down slightly compared with the previous day. The actual transaction price range in the central China market ultimately hovered between parity and a discount of 10 yuan to the central China price. The shipment sentiment index for the central China market was 2.83, flat WoW; the procurement sentiment index was 2.26, flat WoW.

Aluminum scrap:Last Friday, A00 aluminum price fell 240 yuan/mt from the previous trading day, and aluminum scrap market prices generally followed suit. The mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) hovered around 20,400-20,800 yuan/mt (tax exclusive). The weekly operating range for imported shredded zorba (Ningbo Port) was raised by 200 yuan/mt to 21,870-22,070 yuan/mt (tax inclusive). On the price difference front, on May 15, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was recorded at 2,676 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,103 yuan/mt. Supply side was significantly constrained by policies, as strict enforcement of reverse invoicing led to a shortage of compliant tax invoice sources, pushing up industry costs, with stockyards generally holding back from selling and holding prices firm. According to survey feedback, warehouse inflows at mainstream stockyards in east China declined YoY, showing a slight inventory buildup trend, while aluminum tense scrap inventory pulled back somewhat. On the imported aluminum scrap front, persistently high LME prices creating an inverted import margin made import traders more cautious, and subsequent imports are expected to pull back. Demand side entered the traditional consumption off-season, with secondary aluminum enterprises' operating rates pulling back slightly. Tax enforcement pressure combined with low-price difficulties led some enterprises to cut or halt production, further weakening market demand. The aluminum tense scrap segment maintained a low-inventory just-in-time procurement model. Although the wrought aluminum alloy scrap segment received slight support from sheet and strip operating rates, overall momentum was limited, with sluggish market transactions and strong wait-and-see sentiment.

Secondary aluminum alloy:Last Friday, the ADC12 market was generally stable with slight fall overall. Some enterprises followed with slight declines driven by weakening aluminum prices, while others maintained a wait-and-see stance with stable prices due to high costs and tight compliant supply sources. From a supply-demand structure perspective, demand side performance remained mediocre, suppressing upward price movement; however, supply side saw marginal tightening due to factors such as invoice shortages, import contraction, and phased production cuts, providing some price support. Against this backdrop, ADC12 prices are expected to continue to move sideways in the short term, with relatively limited downside room. On the import front, current import ADC12 quotes edged down but remained in the high range of $3,360-3,430/mt, with immediate import losses exceeding 3,000 yuan/mt, and the theoretical import window continued to remain closed.

Aluminum market summary:The macro front saw positive signals, as China-US economic and trade consultations achieved preliminary results. Both sides agreed to continue implementing prior tariff arrangements and establish a Trade and Investment Council, which is expected to promote tariff reductions on certain products. The marginal easing of trade frictions is expected to improve export expectations for aluminum semis and end-use products, providing bullish support for market sentiment. However, high inventory levels in China remain the core factor suppressing significant price rallies. Additionally, weak spot market transactions further limit the upside room for aluminum prices. In the short term, aluminum prices are expected to continue the pattern of LME outperforming SHFE, fluctuating at highs.

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