Macro disturbances cap upside room, while destocking continues to support aluminum price stabilization [SMM Aluminum Morning Meeting Summary]

9.7 SMM Aluminum Morning Meeting Minutes

Futures: The most-traded SHFE aluminum contract opened at 24,240 yuan/mt in the night session on September 4, with a high of 24,355 yuan/mt, a low of 24,220 yuan/mt, and a close of 24,320 yuan/mt, up 0.12% from the previous close. Futures stabilized and rebounded, with moving averages in a bullish alignment, all short-term moving averages above long-term ones, and prices trading near the MA5. Trading volume shrank notably during the session, while open interest edged up, driven mainly by long-side additions. On the technical front, the 4-hour MACD golden cross continued with the red histogram maintained, though its height contracted somewhat, indicating marginal weakening of bullish momentum. On September 4, LME aluminum opened at $3,316.0/mt, with a high of $3,321.0/mt, a low of $3,278.0/mt, and a close of $3,296.0/mt, down 0.65% from the previous close. The prior day's bottom-fishing recovery failed to extend, and futures weakened again, though the close remained above all short-term moving averages. Open interest increased during the day, with notable short-side additions. On the technical front, the daily MACD red histogram continued, suggesting short-term upward momentum remains.

Macro front: The surprisingly strong US August jobs report sharply raised market expectations for a Fed rate hike in September, triggering wild swings in financial assets. On Friday, data released by the US Bureau of Labor Statistics showed that nonfarm payrolls rose by 162,000 in August, far exceeding the Wall Street consensus estimate of 55,000 and surpassing the upper bound of all institutional forecasts, marking the second-highest monthly gain of the year.

Fundamentals: Last week, the operating rate at leading aluminum downstream processing enterprises in China came in at 61.0%, up 0.8 percentage points WoW. Entering the traditional September peak season, earlier disruptions have gradually been cleared, and operating rates across sectors broadly saw recovery-driven gains. Secondary aluminum and primary aluminum alloy posted the largest increases, while aluminum wire and cable, aluminum extrusion, aluminum plate/sheet and strip, and aluminum foil also recovered. Overall, the peak-season effect is gradually emerging and driving a broad recovery in industry operating rates, but a full recovery in end-use demand will take time and cost-side pressures persist. Operating rates across sectors are expected to continue a mild recovery in the near term. On the inventory front, aluminum ingot inventory in major consuming regions in China stood at 802,000 mt on Monday, down 13,000 mt from last Thursday and down 35,000 mt from last Monday.

Primary aluminum market: The SHFE aluminum price center was basically flat from yesterday. Purchasing sentiment in the spot market was relatively active at the open, then cooled somewhat. SHFE aluminum A00 spot transactions were concluded at parity to a premium of 40 yuan/mt. Aluminum futures rallied again in the night session. In the central China market, pre-market quotes were relatively low, and traders tended to restock aggressively at deep discounts. With Friday also in play, downstream processing enterprises showed renewed interest in purchasing and stockpiling, and overall market trading sentiment recovered, driving quotes gradually higher. Final transaction prices in the central China market were around a discount of 110-150 yuan/mt against the SHFE aluminum September contract. Aluminum prices pulled back slightly today, with the weak tone in the spot market unchanged and trading patterns largely similar to yesterday. Although the spot-futures price spread was expected to weaken, its absolute level remained high, and absolute prices also stayed high. Under this dual pressure, suppliers' tentative attempts to hold prices firm met no response, and they subsequently shifted to lowering prices for shipments to varying degrees. Sellers offloading at lower prices still appeared from time to time, and discounted spot cargoes kept circulating. On the demand side, downstream users showed limited acceptance of high prices and only made just-in-time procurement. Traders initially pushed for lower prices while waiting on the sidelines, then took advantage of the weak spot-futures price spread to step up absorption of discounted spot cargoes, providing some support to the spot market. Overall transactions were lackluster. Spot transaction prices were concentrated at a premium of 165-205 yuan/mt against the SHFE aluminum 2609 contract.

Aluminum scrap:Today, SMM A00 aluminum closed at 24,360 yuan/mt, up slightly by 10 yuan/mt WoW from the previous trading day, while aluminum scrap market prices remained generally stable. In terms of price differences, as of September 4, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,431 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,266 yuan/mt, widening further WoW. On the import side, previously traded resources arriving at ports have provided some supplement to domestic supply, with import shredded aluminum zorba port quotations holding near $2,485/mt, stable WoW. However, the UAE export ban and the EU tariff hike policies continue to have an impact, with the contraction in European and Middle Eastern supply sources unchanged. High-quality scrap with invoices remains tight overall, leaving limited room for import growth. A substantive recovery in end-use demand still needs to be observed, and inventory digestion for wrought aluminum alloy scrap still requires 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 price center shifting 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: The ADC12 market remained generally stable today. On one hand, aluminum prices and aluminum scrap raw material prices showed limited fluctuations today, with little change on the cost side, providing insufficient impetus for enterprises to adjust prices. On the other hand, downstream demand recovery remains mild, with purchasing mainly driven by just-in-time procurement, and the improvement in market transactions has yet to form strong support. Against the backdrop of relatively stable costs and limited demand recovery, the industry's overall willingness to adjust prices is low, and enterprises generally choose to hold quotations steady for now while watching market changes. In the short term, ADC12 prices are expected to consolidate on a stable note, with future price direction still dependent on changes in aluminum prices and aluminum scrap costs, as well as whether end-use demand can be further released during the September peak season.

Comprehensive outlook: US non-farm payrolls significantly beat expectations, and expectations for US Fed interest rate hikes have risen again. The repeated disturbances in macro tightening expectations are creating phased pressure on aluminum price gains. China's low inventory pattern for aluminum ingots persists, with inventory maintaining a destocking trend, and the spot market is providing strong support for aluminum prices, remaining the dominant factor in the current market. On the demand side, the market has entered the traditional September peak season, and processing enterprises' operating rates are recovering, but a full recovery in end-user orders still needs time. The actual extent of peak season fulfillment remains to be seen. Meanwhile, aluminum billet inventory continues to build up, posing a potential risk of transmission to the aluminum ingot segment. Overseas aluminum supply continues to recover, further constraining the upside room for aluminum prices. From a futures perspective, SHFE aluminum's technical pattern remains strong, but upward momentum is weakening at the margin. Insufficient trading volume is limiting the strength of an upside breakout, and SHFE and LME trends are diverging. In the short term, aluminum prices are expected to maintain a fluctuating trend.

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