Differences Over the Middle East Situation Persist; Aluminum Prices Expected to Hold Up Well in the Short Term [SMM Aluminum Morning Meeting Minutes]

8.1 SMM Aluminum Morning Meeting Minutes

Futures:SHFE aluminum closed at 23,950 yuan/mt, down slightly by 0.13%. The price was above MA5 (around 24,000) and all short- to mid-term moving averages (MA10=23,696.5, MA30=23,252.17, MA60=23,719.67). The moving-average system showed a bullish alignment, and the mid-term uptrend remained intact. MACD indicators showed DIF=140.3 and DEA=45.33, maintaining a golden cross above the zero line, with the histogram expanding to 189.94, indicating continued strengthening bullish momentum. Trading volume shrank to 49,000 lots, and wait-and-see sentiment remained strong near the highs. The suggested core operating range for SHFE aluminum was 23,700-24,300. LME aluminum closed at $3,280/mt, up 0.31%. The price was above all key moving averages (MA5=3,256.1, MA10=3,222.05, MA30=3,173.32, MA60=3,033.3). The moving-average system showed a bullish alignment, and the mid-term uptrend was solid. MACD indicators showed DIF=-5.28 and DEA=-14.87; the negative histogram turned positive to 40.3, forming a low-level golden-cross signal, indicating bearish momentum had faded and bulls were starting to gain strength. The suggested core operating range for LME aluminum was 3,250-3,320.

Macro front:US President Trump said he was currently “handling” the Iran issue “in a low-key manner” and hinted that, compared with relaunching large-scale military operations, he preferred to step up economic pressure. Iran’s Foreign Minister Araghchi said there were currently no negotiations between Iran and the US, but mediators were still working to find ways to resume talks. Zolghadr, Secretary of Iran’s Supreme National Security Council, said that if the US did not change its behavior, the Strait of Hormuz would remain closed, and that reopening the Strait of Hormuz was conditional on the US meeting five requirements, including permanently ceasing military operations against Iran.

Fundamentals:Supply side, China’s weekly aluminum production was basically stable this week, and the proportion of liquid aluminum rose 0.19 percentage points WoW; outside China, amid continued progress in ramp-ups at newly commissioned projects and resume production at restarted projects, aluminum supply was expected to keep increasing. However, in the short term, the global destocking trend for aluminum ingot remained unchanged. Demand side, downstream processing industries were in the traditional consumption off-season, with overall operating rates under pressure; aluminum billet processing fees pulled back, and substitution demand for aluminum ingot weakened. Inventory side, China’s aluminum social inventory continued to destock this week. As of this Monday, China’s aluminum ingot social inventory destocked by 16,000 mt from last Thursday to 917,000 mt, and destocked by 41,000 mt from last Monday, with the destocking magnitude narrowing further; meanwhile, aluminum billet inventory built up slightly, with a weekly inventory buildup of 4,000 mt WoW. In the short term, aluminum ingot inventory was expected to continue destocking.

Primary Aluminum Market:In the morning session, the SHFE aluminum 2608 contract continued to post a marked rise in its center versus yesterday. However, with inventory continuing to destock and the contango structure widening, most suppliers were unwilling to cut prices. The actual transaction price of A00 aluminum ingot was 08-40 to 08-20 yuan/mt. Today, the east China market shipment sentiment index was 3.15, up 0.02 MoM; the purchasing sentiment index was 3.09, up 0.13 MoM. Aluminum futures continued to rise, and with the Friday stockpiling cycle, downstream processing enterprises in the central China market still showed weak buying sentiment. Trading firms engaging in both spot and futures market made large purchases, and amid deep discounts, major suppliers increasingly sought to hold prices firm and hold back from selling, driving a steady rise in market premiums. Ultimately, the actual transaction price range in the central China market hovered at a discount of 120-160 yuan/mt against the SHFE aluminum 08 contract. Today, the central China market shipment sentiment index was 3.01, up 0.04 MoM; the purchasing sentiment index was 2.97, up 0.01 MoM. Today, futures continued to surge, and spot cargo in south China showed strong resilience. Arrivals were already tight and the destocking trend remained steady, continuing to support above-scale suppliers in staying bullish on the market outlook, holding prices firm and holding back from selling, with some even actively attempting to push prices higher. Even without a buying response, they firmly refused to adjust prices. Mainstream quotations were at premiums of 0 to +10 yuan/mt, with tight circulation in some areas. Demand side, downstream players struggled to accept the price spike and only made minimal just-in-time procurement. However, given limited circulation, active market entry by traders to purchase at non-premiums was already sufficient to absorb supply. The supply-demand pattern was tight, and overall transactions improved steadily. Spot transaction prices were concentrated at a premium of 65 yuan/mt to 105 yuan/mt against the SHFE aluminum 2608 contract.

Secondary Aluminum Raw Materials:Today, SMM A00 spot aluminum prices closed at 23,980 yuan/mt, up 180 yuan/mt MoM from the previous trading day. Aluminum scrap prices in China remained mainly stable as the market stayed on the sidelines, with only some varieties in parts of east China posting slight follow-up gains. In terms of the price difference between A00 aluminum and aluminum scrap, as of August 7, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,310 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,110 yuan/mt. As primary aluminum prices continued to rise, aluminum scrap lacked momentum to follow, and the price difference between A00 aluminum and aluminum scrap widened again. Marginal weakening in secondary aluminum alloy and its downstream demand, together with elevated inventories of wrought aluminum alloy scrap raw materials for doors and windows in Henan and other regions, hindered the price transmission mechanism for aluminum scrap, leaving clearly insufficient momentum to follow gains. Affected by the traditional consumption off-season, the operating rate of downstream cast aluminum alloy enterprises continued to decline, order volumes shrank, and the aluminum scrap market lacked substantive support. Looking ahead, the supply-demand mismatch is expected to be difficult to reverse in the short term. Scrap utilization enterprises are likely to maintain a strategy of purchasing as needed and operating with low inventory, and the market trading atmosphere is unlikely to see substantive improvement. Shredded aluminum tense scrap priced based on aluminum content is expected to be dragged down next week by a stalemate in raw material prices and weak downstream demand, leaving the overall market under pressure. The mainstream range is expected to hover around 20,200-20,800 yuan/mt.

Secondary Aluminum Alloy: Spot: Today, ADC12 market quotes were mainly consolidating on a strong note overall, with SMM ADC12 prices edging up by 50 yuan/mt. Current primary aluminum prices continued to support costs, and enterprises still had the willingness to hold prices firm. However, end-use demand remained persistently weak, downstream procurement pace was relatively cautious, and market transactions saw limited improvement. Prices lacked momentum to adjust downward, while upward pass-through was also constrained by demand. In the short term, the ADC12 market was expected to maintain a consolidating pattern where cost support and demand suppression coexisted.

Overall Outlook:Differences over the Middle East situation still remained. Although the US Fed did not raise interest rates in July, its overall stance remained hawkish. The fundamental supply-demand gap persisted, aluminum ingot inventory continued to decline, and aluminum prices were expected to consolidate on a strong note 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 decisions prudently and should not use this to replace their own independent judgment. Any decisions made by clients are unrelated to SMM]