Macro rate hike expectations bring periodic pressure, while destocking in China provides solid bottom support [SMM Aluminum Morning Meeting Summary]

9.11 SMM Aluminum Morning Meeting Minutes

Futures: The most-traded SHFE aluminum contract opened at 24,310 yuan/mt in the night session on September 10, reached a high of 24,310 yuan/mt and a low of 24,075 yuan/mt, and closed at 24,125 yuan/mt, down 365 yuan/mt or 1.49% from the previous close. Futures fell sharply, with prices pulling back below multiple short-term moving averages, breaking the bullish pattern. Trading volume increased notably during the session, while open interest dropped sharply, driven mainly by bulls cutting positions and exiting. On the technical front, the 4-hour MACD formed a death cross with green bars emerging, releasing bearish momentum. On September 10, LME aluminum opened at $3,355.0/mt, reached a high of $3,362.0/mt and a low of $3,272.5/mt, and closed at $3,274.5/mt, down 85.5 or 2.54% from the previous close. Futures retreated after a rapid rise and weakened significantly, with prices breaking below multiple short-term moving averages. Trading volume increased during the day, while open interest rose, driven mainly by bears adding positions. On the technical front, the daily MACD red bars shortened notably, with bullish momentum fading rapidly.

Macro front: US August PPI YoY came in at 5.4%, above the 5.3% market expectation, while August core PPI MoM came in at 0.2%, below the 0.3% market expectation, sending mixed signals as US Fed officials debate whether to raise rates next week. After the PPI data release, the market fully priced in a Fed rate hike in October. According to CME "FedWatch": the probability of the Fed keeping rates unchanged in September is 28.8%, and the probability of a cumulative 25bp hike is 71.3%. The probability of the Fed keeping rates unchanged in October is 17.6%, the probability of a cumulative 25bp hike is 54.8%, and the probability of a cumulative 50bp hike is 27.6%.

Fundamentals: Supply side, this week's weekly aluminum production held steady at 874,700 mt, with the proportion of liquid aluminum rebounding 0.15 percentage points to 78.93%, further reducing casting ingot volume. Outside China, production resumptions and new capacity ramp-ups continued, damaged capacity in the Middle East recovered, and aluminum supply outside China kept repairing. In China, the "September peak season" saw broad-based recovery across sectors, with social inventory continuing to destock, falling to 796,000 mt on September 10, breaking below the 800,000 mt mark. This week, the operating rate of leading aluminum downstream processing enterprises in China came in at about 61.3%, up slightly MoM. Entering the traditional September peak consumption season, earlier disruptions were gradually cleared, and operating rates across sectors broadly saw recovery-driven growth.

Primary aluminum market: Today, the most-traded SHFE aluminum 2609 contract rose notably from yesterday, but pulled back somewhat near 10:15. Spot transactions remained pressured into discounts, which widened. Trading among traders was also mediocre. Today, SMM A00 aluminum ingot transactions closed at a discount of 30 yuan/mt to a discount of 10 yuan/mt. With the mismatch between September peak season expectations and sluggish reality, downstream processing enterprises in the central China market maintained a procurement pace of small volumes on an as-needed basis amid high absolute aluminum prices, cautiously stockpiling and focusing on reducing in-factory inventory. Only trading firms engaging in both spot and futures market made large purchases, while major suppliers showed poor willingness to sell due to the wide discount. Ultimately, the actual transaction price range in the central China market was around a discount of 150-180 yuan/mt against the 09 contract. Today, aluminum prices were stable, while the spot market weakened. Inventory continued to destock to lower levels, supporting suppliers to generally hold prices firm and slow the pace of shipments in the morning. However, the combination of high absolute prices and a wide spot-futures price spread still exerted greater pressure to liquidate, compounded by localized bearish sentiment, making downward adjustments and increased selling ultimately inevitable. Quotes gradually moved lower, with ample discounted supply in circulation. Downstream remained cautious about high prices with weak purchasing power, and traders also turned cautious, showing no intention of buying at high levels, only pushing for lower prices and buying low on an as-needed basis. With supply increasing and demand decreasing, transaction feedback was poor.

Aluminum scrap: Today, SMM A00 aluminum price closed at 24,560 yuan/mt, flat WoW from the previous trading day, and aluminum scrap market prices also remained stable. In terms of price difference between A00 aluminum and aluminum scrap, on September 10, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,436 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,415 yuan/mt, widening slightly again WoW. On the supply side, the tight raw material supply pattern remained unchanged, and the scarcity of compliant, invoiced aluminum scrap continued to rise, constraining the operating rates and procurement of scrap utilization enterprises. Against this backdrop, some aluminum scrap yards actively sold amid high aluminum prices, while correspondingly reducing purchases and stockpiling, leading to a phased release of circulating supply in the market. The aluminum scrap market is expected to continue consolidating on a strong note next week. At the early stage of the September peak season, a substantive recovery in downstream end-use demand orders still needs to be observed. The active selling behavior of scrap yards may persist in phases, but the tight supply of high-quality invoiced scrap is unlikely to see substantive improvement. The mainstream operating range for shredded aluminum tense scrap (priced based on aluminum content) is expected to be around 20,700-21,300 yuan/mt, with close attention needed on the pace of downstream order recovery and the sustainability of scrap yard selling behavior.

Secondary aluminum alloy: Spot market: Today, ADC12 market prices were mainly stable, with slight upward adjustments in some regions. Cost side, aluminum prices have held up well recently, coupled with rising copper prices, alloy production costs have increased somewhat, providing certain support to prices. Demand side, although entering the traditional "September peak season," some enterprises reported that orders have recovered compared with the earlier period, but the overall improvement remains limited, and the peak season effect has yet to be fully realized, with downstream procurement still mainly driven by rigid demand. Under the dual influence of cost support and limited demand improvement, the industry's overall willingness to adjust prices remains cautious in the short term. ADC12 prices are likely to continue consolidating on a strong note, and further price rises still require observation of the actual release of end-use demand.

Comprehensive outlook: The current market is a mix of bullish and bearish factors. In the short term, expectations for US Fed interest rate hikes are rising, and a stronger US dollar is weighing on metals valuations. Aluminum futures inside and outside China are weakening in tandem, bearish momentum is being released on the technical front, and aluminum prices are facing pullback pressure. In the medium and long term, China's aluminum ingot inventory remains low, and continued destocking provides relatively strong support for aluminum prices at the bottom. Additionally, geopolitical conflicts are pushing up energy prices, creating supply risk premiums. Domestically, the market is entering the September peak season, and processing operating rates are recovering, but the strength of end-user order recovery still needs to be confirmed. Aluminum billet inventory continues to build up, creating potential pressure for inventory to shift to aluminum ingot. Meanwhile, capacity ramp-up from overseas aluminum production resumptions continues, and expectations for looser supply in the longer term remain. Overall, aluminum prices are expected to consolidate under pressure in the short term, with relatively strong support at lower levels in the medium and long term, and repeated market battles within the trading range.

[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 substitute for independent judgment. Any decisions made by clients are not related to SMM.]