Bullish Futures Structure Continued; Aluminum Prices Held Up Well in the Short Term [SMM Aluminum Morning Meeting Minutes]

8.12 SMM Aluminum Morning Meeting Minutes

Futures: SHFE aluminum closed at 24,320 yuan/mt, up 0.58%. The price was well above all key moving averages (MA5=24,117; MA10=23,907.5; MA30=23,377.83; MA60=23,716.17). The moving-average system showed a bullish alignment and accelerated divergence, indicating a strong medium-term uptrend. MACD indicators showed DIF=216.999 and DEA=104.835, maintaining a golden cross above the zero line, with the histogram expanding to 224.329 (216.589 the previous day), suggesting continued strengthening bullish momentum. Trading volume edged up to 57,400 lots but remained at a low level. The suggested core trading range for SHFE aluminum was 23,900-24,500. LME aluminum closed at $3,364.5/mt, up 0.06%. The price was well above all key moving averages (MA5=3,319.8; MA10=3,267.75; MA30=3,192.8). The moving averages were in a bullish alignment, and the medium-term uptrend remained intact. The MACD histogram expanded to 53.97 (50.83 the previous day), indicating continued strengthening bullish momentum. The suggested core trading range for LME aluminum was 3,350-3,420.

Macro front: Pakistan’s Defense Minister Asif said the US and Iran were close to reaching “some kind of arrangement,” and the situation was again moving in a direction favorable to achieving a peaceful arrangement or agreement. Iran’s Supreme Leader’s adviser Mokhber said the Strait of Hormuz would not be opened until Iran’s conditions were met. A spokesperson for Qatar’s Ministry of Foreign Affairs said talks between Oman and Iran had entered an “advanced stage,” with positive feedback received from both countries, and negotiations were at a critical moment.

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 of newly commissioned projects and ongoing resume production 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 sectors 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 16,000 mt from last Thursday to 917,000 mt, and destocked 41,000 mt from last Monday, with the pace of destocking narrowing further; meanwhile, aluminum billet inventory built up slightly, with an inventory buildup of 4,000 mt WoW. In the short term, aluminum ingot inventory was 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 procurement, while trades among traders were relatively active. Today, the main trading center for SHFE aluminum spot premiums was between 8-40 yuan/mt and 08-20 yuan/mt. Today, the shipment sentiment index in the east China market was 3.16, up 0.01 MoM; the purchasing sentiment index was 3.2, up 0.04 MoM. Aluminum futures prices continued to rise, and trading sentiment in the central China market remained sluggish today. Downstream processing enterprises showed weak buying sentiment, and overall trading volume was limited. Small traders tended to dump large volumes when aluminum prices were high, while large traders’ sentiment to hold prices firm remained notable. Ultimately, the actual transaction price range in the central China market hovered at a discount of 120-140 yuan/mt against the SHFE aluminum 08 contract. Today, the shipment sentiment index in the central China market was 3.06, up 0.02 MoM; the purchasing sentiment index was 2.95, down 0.01 MoM. Today, aluminum prices continued to rise, and the spot market gradually came under pressure. Supported by the reality of tight arrivals, suppliers generally attempted to hold prices firm and sell slowly in the morning without urgency; at this time, some buyers turned bullish and purchased as needed in advance, and trading was still matched. However, as the pattern of both high absolute prices and a high spot-futures price spread was confirmed, suppliers’ willingness to monetize kept strengthening, and the move to cut prices and increase sales became unstoppable. Offers circulated at -20 to 0, with more discounts emerging, while aside from traders’ limited restocking at discounts, other demand saw almost no follow-up, and transactions also weakened.

Aluminum scrap: Today, the SMM A00 spot aluminum price closed at 24,100 yuan/mt, up 110 yuan/mt from the previous trading day. In China’s aluminum scrap market, prices for aluminum tense scrap held steady as participants waited and watched, while bare bright aluminum wire and aluminum extrusion scrap free of paint rose in tandem. In terms of the price difference between A00 aluminum and aluminum scrap, as of August 11, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,360 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,260 yuan/mt. As primary aluminum prices continued to climb, aluminum scrap lacked momentum to follow, and the price difference between A00 aluminum and aluminum scrap widened again. Secondary aluminum alloy and its downstream demand weakened marginally, and coupled with elevated inventories of wrought aluminum alloy scrap raw materials for 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, 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 unlikely to reverse in the short term. Scrap utilization enterprises are likely to maintain purchasing as needed and a low-inventory operating strategy, 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, leaving the overall market under pressure, with the mainstream range expected to hover around 20,200-20,800 yuan/mt.

Secondary aluminum alloy: Spot market: Today, ADC12 market quotes consolidated on a strong note, with the SMM average price slightly raised by 50 yuan/mt. Some enterprises followed with an increase of 100 yuan/mt, supported by elevated raw material costs and relatively strong aluminum prices. However, end-use demand remained in the high-temperature off-season, with downstream demand dominated by just-in-time procurement, and transaction improvement was limited; some enterprises stayed stable for now and waited and watched. In the short term, cost support remains solid, leaving limited downside room for prices. However, the demand side is clearly capping gains. ADC12 is expected to maintain a consolidation pattern where cost support and demand constraints coexist, and the extent of any rise still hinges on a substantive recovery in end-use consumption.

Overall outlook:Differences over the Middle East situation persist. Although the US Fed did not raise rates in July, its overall stance remains hawkish. The fundamental supply-demand gap continues, aluminum ingot inventory keeps drawing down, and aluminum prices are 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 replace their own independent judgment with this. Any decisions made by clients are unrelated to SMM.]