Insufficient peak-season demand realization, accelerated destocking provides upward price momentum [SMM Aluminum Morning Meeting Summary]

9.4 SMM Aluminum Morning Meeting Minutes

Futures: Yesterday, SHFE aluminum closed at 24,390 yuan/mt, up 0.47%, hitting a recent high of 24,510 during the session. Prices are well above all key moving averages (MA5=24,209, MA10=24,006.5, MA30=23,862.83, MA60=23,578.33), with the moving average system in bullish divergence and the medium-term uptrend strong. The MACD indicator maintains a golden cross above the zero axis, with the histogram continuing to expand, indicating ample bullish momentum. Trading volume pulled back slightly to 71,600 lots, suggesting some weakening in the willingness to chase highs. The core trading range for SHFE aluminum is suggested at 24,200-24,800. LME aluminum closed at $3,318/mt, edging up 0.02%, with intraday fluctuations between 3,314 and 3,319, moving sideways at high levels. Prices are above MA10 (3,259.7), MA30 (3,242.33), and MA60 (3,227.67), but slightly below MA5 (3,338.9), with the short-term moving average posing mild pressure while medium-term support remains solid. The MACD histogram stands at positive 17.16, indicating sustained bullish momentum. The core trading range for LME aluminum is suggested at 3,260-3,380.

Macro front: Fed Governor Waller said that if upcoming data confirm inflationary pressures are cooling, he would lean toward supporting a rate hold at the Fed's next monetary policy meeting. However, he also warned that if inflation data come in hot, a further rate hike in September remains a possibility. Following Waller's remarks, traders reduced their bets on a September Fed rate hike.

Fundamentals: Supply side, this week's weekly aluminum production held steady at 874,700 mt, with the proportion of liquid aluminum rebounding 0.32 percentage points to 78.78%, further reducing casting ingot volumes. Overseas production resumptions and new capacity ramp-ups, along with the recovery of damaged capacity in the Middle East, continued to repair ex-China aluminum supply. Demand side, the peak season is materializing slowly. 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 aluminum processing composite PMI is expected to rise to 51.9%, potentially returning to expansion territory, but performance across sub-sectors is divergent, 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. Inventory side, as of this Thursday, 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 reaccelerating. LME inventory at 246,000 mt remains at historical lows. However, aluminum billet inventory at 142,000 mt saw an inventory buildup of 2,500 mt, diverging from the ingot side.

Primary aluminum market: Today, SHFE aluminum futures center moved higher than yesterday. At the open, spot prices against the SHFE aluminum 2609 contract traded at premiums of 10-20 yuan/mt, with some east China cargoes flowing to south China. Later, as aluminum prices rose, SHFE aluminum spot premiums declined from opening levels. Today, the main trading range for A00 aluminum ingot spot was from parity to a premium of 20 yuan/mt. SHFE aluminum futures rallied again, and with September peak season underperforming, downstream processing enterprises in central China showed sluggish buying sentiment and strong wait-and-see sentiment, leaving market trading relatively thin. Suppliers also tended to sell in large volumes when premiums were raised, with selling sentiment weakening in tandem. Ultimately, actual transaction prices in central China were centered around a discount of 110-150 yuan/mt against the SHFE aluminum September contract. Today aluminum prices surged, and the spot market collapsed. The previously elevated spot-futures price spread itself was likely to exert pressure, and the absolute price hitting a new high since April became the last straw that broke the camel's back. Most suppliers rushed to cash out at highs, slashing prices sharply to offload cargoes, while some attempted to hold prices firm on the destocking trend but could not offset the impact of the former, with virtually no substantive feedback. Discounted cargoes flooded the market, and extreme low prices existed in reality. Both downstream players and traders showed fear of high prices, only purchasing small volumes of low-priced cargoes as needed after repeated price negotiations, with transactions increasingly showing prices but no market.

Aluminum scrap: Today SMM A00 aluminum closed at 24,350 yuan/mt, up 270 yuan/mt WoW from the previous trading day, and aluminum scrap market prices rose across the board. In terms of price spreads, on September 3, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,461 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,240 yuan/mt, widening further WoW. On the import side, previously traded cargoes arriving at ports gradually supplemented domestic supply, with import shredded aluminum zorba port quotations holding near $2,485/mt, stable WoW; however, the UAE export ban and EU tariff hike policies continued to weigh, with the contraction in European and Middle Eastern supply sources unchanged. High-quality scrap with invoices remained tight overall, leaving limited room for import growth. A substantive recovery in end-use demand still requires observation, and destocking of wrought aluminum alloy scrap inventory still needs time. Scrap utilization enterprises are likely to continue purchasing as needed and maintain low-inventory operating strategies, with the pace of following price increases expected to remain slow. Next week, the aluminum scrap market is expected to consolidate on a strong note with the center edging slightly higher. The mainstream operating range for shredded aluminum tense scrap (priced based on aluminum content) is expected to center around 20,300-21,000 yuan/mt, with close attention needed on the pace of downstream order recovery.

Secondary aluminum alloy: Spot market: Today ADC12 market quotations showed a relatively pronounced upward adjustment overall, with SMM ADC12 price up 200 yuan/mt from the previous day to 24,300 yuan/mt. The price adjustment momentum was mainly driven by stronger aluminum prices and futures, rising raw material costs, and improved market sentiment. Currently, cost side support for ADC12 prices has further strengthened. Against the backdrop of cost pressure and a strong market trend, enterprises showed increased willingness to repair prices upward; meanwhile, some enterprises hold certain expectations for a subsequent recovery in end-use demand. However, based on actual market feedback, the current improvement in demand remains relatively limited, and the price increase is still largely driven by costs and futures, with insufficient positive feedback from end-user orders on prices. Therefore, the industry's price center may continue to repair upward in the short term, but without a significant increase in demand, enterprises' actual room for price hikes remains constrained. Attention should still be paid to the recovery of end-user orders and further changes in aluminum prices and raw material costs.

Comprehensive outlook:Macro tightening expectations have been digested, and low inventory combined with accelerating destocking is providing a floor and dominating this week's pricing; however, insufficient fulfillment of peak-season demand, the risk of aluminum billet inventory buildup transmitting to ingot inventory, and the ongoing recovery of supply outside China are limiting the upside room for aluminum prices. 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 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.]