Aluminum scrap supply tightness underpins ADC12 prices, while the off-season caps the upside [SMM cast aluminum alloy morning comment]

8.3 SMM Cast Aluminum Alloy Morning Comment

Futures: Last Friday night, the most-traded aluminum alloy AD2609 contract opened at 23,115 yuan/mt, with the night session range high of 23,320 yuan/mt, low of 23,115 yuan/mt, and closed at 23,270 yuan/mt. After the night session opened, prices shot up quickly, then pulled back under pressure after hitting the high, briefly tested the low-end support before stabilizing and rebounding, and subsequently traded above the average price line, maintaining a consolidating pattern. Overall, bulls dominated the night session, with strong support below, prices holding above the early-session low, the fluctuation center shifted higher, and open interest edged up. Some selling pressure existed at highs, and the resistance zone above still needed to be breached.

Spot-Futures Spread Daily: According to SMM data, on July 31, the theoretical premium of SMM ADC12 spot price over the most-traded cast aluminum alloy contract (AD2609) closing price at 10:15 was 920 yuan/mt.

Warrant Daily: SHFE data showed that on July 31, total registered warrants for cast aluminum alloy stood at 17,671 mt, up 60 mt from the previous trading day.

Aluminum Scrap: On the supply side in the short term, the tightness in compliant, invoiced cargo availability persists, and suppliers' unwillingness to sell at low prices provides bottom support for prices. On the import front, the lagged effects of the UAE export ban and EU tariff increases will gradually manifest in the coming months, with port arrivals staying low from June to August. On the demand side, the sluggish downstream order trend is unlikely to reverse in the short term, and scrap utilization enterprises are expected to continue purchasing as needed with low inventory strategies, making it difficult for procurement sentiment to improve significantly.

Silicon Metal: (1) Price: Last week, oxygen-blown #553 silicon in Tianjin was at 8,900-9,000 yuan/mt. Futures prices continued to decline; silicon metal producers held prices firm and were reluctant to sell at low prices, while spot-futures traders gradually sold and the spot-futures price spread strengthened. Combined with downstream's low-price purchasing mentality, the tradability of spot cargo in the market weakened, with cost providing bottom support for spot prices. The tug-of-war between longs and shorts in silicon metal continued. (2) Production: In July, China's silicon metal production was around 388,000 mt, up MoM. In mid-to-late July, a small number of silicon enterprises underwent maintenance-related production cuts due to furnace issues or market weakness. August silicon metal production is expected to decline MoM to around 370,000 mt.

Markets Outside China: Currently, overseas ADC12 offers remain at $3,050-$3,160/mt. As domestic prices rise, the immediate import loss narrowed to around 600 yuan/mt, and traders' inquiry activity picked up. If the price spread between Chinese and overseas markets further recovers, imported resources could gradually supplement the Chinese market.

Summary: In the short term, the ADC12 market will continue its pattern of “cost support, demand constraint.” Cost side, primary aluminum prices hold up well and aluminum scrap supply remains tight, continuing to provide strong support; demand side, the traditional consumption off-season is not over yet, and high-temperature holidays will still affect downstream operating rates and procurement pace. End-use demand improvement is expected to wait until the traditional peak season starts from late August to September. Before that, ADC12 prices are expected to continue to consolidate at highs. Going forward, focus should be on primary aluminum price trends, the pace of downstream order recovery, and the impact of tax invoice policy changes on industry supply. If end-use demand sees seasonal recovery in late August while industry compliance costs and tight tax invoice situations have not significantly eased, the supply-demand pattern could tighten further, giving ADC12 prices more solid upward support.

[Data Source Statement: Except for publicly available information, all other data is processed by SMM based on public information, market communication, and SMM's internal database models, for reference only and does not constitute decision-making advice.]