Tightening Liquidity Weighed on Risk Appetite; Destocking Supported Aluminum Prices Holding Up Well [SMM Aluminum Morning Meeting Minutes]

8.11 SMM Aluminum Morning Meeting Minutes

Futures: SHFE aluminum closed at 24,190 yuan/mt, up 0.64%, setting a new recent high. Prices were well above all key moving averages (MA5=23,998, MA10=23,815, MA30=23,312, MA60=23,720), with the moving-average system in a bullish alignment and a clear medium-term uptrend. The MACD indicators showed DIF=184.13 and DEA=75.84, maintaining a golden cross above the zero line, while the histogram expanded to 216.59, indicating continued strengthening bullish momentum. Trading volume edged down to 43,800 lots, showing a slight divergence between volume and price. The suggested core trading range for SHFE aluminum was 23,800-24,500. LME aluminum closed at $3,346.5/mt, up 0.34%, extending its strength. Prices were well above all key moving averages (MA5=3,292.9, MA10=3,247.35, MA30=3,183.2), with a bullish moving-average alignment and an intact medium-term uptrend. The MACD histogram expanded to 50.83 (40.30 the previous day), with bullish momentum continuing to strengthen. The suggested core trading range for LME aluminum was 3,320-3,380.

Macro front: US President Trump said Iran was seeking compensation for losses suffered in the past five months of military conflict, and the US likewise demanded compensation from Iran, having instructed representatives to explicitly incorporate this demand into all future negotiations; as the 30-year US Treasury yield rose to a 19-year high of 5.27%, the 10-year US Treasury yield reached 4.75%, again approaching 5%.

Fundamentals: Supply side, China’s weekly aluminum production was basically stable this week, while the proportion of liquid aluminum rose 0.19 percentage points MoM; outside China, amid continued progress in ramp-ups of newly commissioned projects and ongoing production resumptions, aluminum supply is 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 destocking this week. As of this Monday, China’s aluminum ingot social inventory fell 16,000 mt from last Thursday to 917,000 mt, down 41,000 mt from last Monday, with the pace of destocking narrowing further; meanwhile, aluminum billet inventory edged up, with an inventory buildup of 4,000 mt WoW. In the short term, aluminum ingot inventory is expected to continue destocking.

Primary aluminum market: In early trading, the SHFE aluminum 2608 contract continued to trade at elevated levels. Prices above 24,000 yuan/mt somewhat restrained downstream purchase, while trades among traders were relatively active. Today, the main transaction center for SHFE spot aluminum premiums was between 8-40 yuan/mt and 08-20 yuan/mt. As SHFE aluminum futures continued to rise, spot trades sentiment in the central China market cooled slightly. Constrained by insufficient orders and the continued rise in aluminum prices, downstream processing enterprises showed weak purchase willingness, with only trading firms engaging in both spot and futures market conducting arbitrage purchases. However, against the backdrop of rapidly narrowing premiums, sellers increased shipments and the firmness of quotes weakened somewhat. Ultimately, the actual transaction price range in the central China market was concentrated at a discount of 120-140 yuan/mt against the SHFE August contract. Today, aluminum prices extended gains, and the spot market stabilized and improved. Actual arrivals remained limited and inventory was unlikely to increase; most suppliers still were not in a hurry to sell and monetize at high prices, instead holding prices firm and selling slowly, firmly defending the bottom line of not offering discounts. Quotes loosened somewhat in circulation at 0 to +10, but the scale was controllable. Facing high aluminum prices, downstream purchasing demand showed mediocre performance and rigid support also weakened; however, traders still gradually entered the market to increase buying of non-premium cargo, and large players even directly and aggressively raised prices to purchase and make markets, with trading volume overall satisfactory.

Aluminum scrap: Today, the SMM A00 spot aluminum price closed at 23,990 yuan/mt, up 10 yuan/mt from the previous trading day. China’s aluminum scrap prices were mainly basically stable, with market participants staying on the sidelines; only baled UBC made up for the gains, posting a single-day increase of 100 yuan/mt. In terms of the price difference between A00 aluminum and aluminum scrap, on August 10, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,370 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,160 yuan/mt. As primary aluminum prices continued to rise, aluminum scrap lacked momentum to follow, and the price spread widened again. Marginal demand for secondary aluminum alloy and its downstream sectors weakened, and coupled with high inventories of wrought aluminum alloy scrap raw materials such as doors and windows in Henan and other regions, the price transmission mechanism for aluminum scrap was impeded, with follow-up momentum clearly insufficient. Affected by the traditional consumption off-season, operating rates at downstream cast aluminum alloy enterprises continued to decline and order sizes shrank, leaving the aluminum scrap market without substantive support. Looking ahead, the supply-demand mismatch is unlikely to reverse in the short term; scrap utilization enterprises are expected to largely maintain a strategy of purchasing as needed and operating with low inventories, and the market trading atmosphere is unlikely to see substantive improvement. This week, the priced based on aluminum content for shredded aluminum tense scrap is expected to be dragged by a stalemate in raw material prices and weak downstream demand, remaining under pressure overall, with the mainstream range expected to hover around 20,200-20,800 yuan/mt.
Secondary Aluminum Alloy: Spot: Today, overall ADC12 market quotations remained stable, and the industry generally lacked willingness to adjust prices. Recently, futures strengthened, and inquiry activity among arbitrage traders between futures and spot rebounded somewhat. However, constrained by weak end-use demand, spot transactions saw limited volume expansion, and the price follow-up lacked substantive support. Meanwhile, the cost side continued to provide bottom support; prices were under pressure both upward and downward, and the overall market remained on the sidelines. In the short term, ADC12 prices are expected to continue consolidating steadily.

Comprehensive Outlook: Differences over the Middle East situation persisted. Although the US Fed did not raise rates in July, its overall stance remained hawkish. The fundamental supply-demand gap continued, aluminum ingot inventory kept declining, and in the short term aluminum prices are expected to consolidate on a strong note.

[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 as a replacement for independent judgment. Any decisions made by clients are unrelated to SMM.]