Accelerated destocking of aluminum ingots lifts aluminum price center, while peak-season performance is expected to cap upside room [SMM Aluminum Price Weekly Review]

SMM, September 3:

Macro perspective:

Fed Chairman Warsh delivered a hawkish speech at the Jackson Hole symposium, lifting market expectations for a September rate hike to around 60%, while the US dollar consolidated amid fluctuations, unsettling the nonferrous metals sector. The Fed's latest Beige Book showed that US economic activity expanded moderately from early July to late August, with employment edging up, but rising energy prices, policy shifts, and international conflicts created greater uncertainty. US ADP employment for August came in at only 38,000, below expectations and the lowest of the year, sending Treasury yields lower and the dollar tumbling after the release. US-Iran tensions escalated again as US forces struck Islamic Revolutionary Guard Corps targets, pushing international oil prices higher and keeping inflation concerns churning through the market.

Fundamentals:

On the supply side, weekly aluminum production held steady at 874,700 mt this week, with the proportion of liquid aluminum rebounding 0.32 percentage points to 78.78%, further reducing casting ingot volumes. Outside China, production resumptions and new capacity ramp-ups continued, damaged capacity in the Middle East recovered, and overseas aluminum supply kept repairing. On the demand side, peak-season realization remained slow. The August composite PMI for the aluminum processing industry came in at 48.7%, slightly higher than July but still below the 50 mark. The September composite PMI for aluminum processing is expected to rise to 51.9%, potentially returning to expansion territory, but performance varied across segments, and the strength of the peak season still depends on the tug-of-war between end-use consumption recovery and restocking willingness amid high aluminum prices. On the inventory side, Thursday's social inventory of aluminum ingot stood at 815,000 mt, down 37,000 mt from last Thursday and down 22,000 mt from this Monday, with destocking accelerating again. LME inventory at 246,000 mt remained at a historical low. However, aluminum billet inventory rose by 2,500 mt to 142,000 mt, diverging from the ingot side.

Overall:

Macro tightening expectations have been digested, and low inventory plus accelerating destocking provided a floor and dominated pricing this week. However, risks remain from insufficient peak-season demand realization and the potential transmission of aluminum billet inventory buildup to the ingot side, while overseas supply continues to repair, capping upside room for aluminum prices. In the short term, aluminum prices are expected to consolidate on a strong note. Next week, the most-traded SHFE aluminum contract is expected to trade in the range of 23,800-24,700 yuan/mt, and LME aluminum at $3,230-3,360/mt. Going forward, focus on the September 15-16 FOMC meeting, the pace of destocking, and the strength of peak-season order fulfillment.

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