US Treasury yields continue to hit new highs, hawkish US Fed expectations drag aluminum prices down [SMM Aluminum Morning Meeting Summary]

9.16 SMM Aluminum Morning Meeting Minutes

Futures: The most-traded SHFE aluminum 2610 contract closed at 24,150 yuan/mt, up 110 yuan or 0.46% from yesterday's settlement price. It opened at 24,120.00 yuan/mt during the day and fluctuated in the range of 24,075-24,195 yuan/mt. Prices traded below MA5 (24,205.00) and MA10 (24,312.50), and above MA30 (24,065.00) and MA60 (23,616.83). The short-term rebound structure has been partially repaired, while the consolidation pattern continues, with short-term moving averages above forming key resistance. The MACD DIF (123.0407) is below DEA (150.9039), and the MACD green bar stands at -55.7263, indicating bulls' momentum remains weak. The suggested core trading range for SHFE aluminum is 23,800-24,600 yuan/mt. The LME aluminum 3M contract settled at $3,249.00/mt, down 0.11%. It opened at $3,251.50/mt during the day and fluctuated in the range of $3,249.00-3,254.00/mt. Prices traded below MA5 (3,256.80), MA10 (3,290.40), and MA30 (3,268.10), and above MA60 (3,212.94). The short-term upward structure continued to face resistance, with a sideways consolidation pattern emerging and short-term moving averages above forming clear pressure. The MACD DIF (7.1415) is below DEA (12.8216), and the MACD green bar is -11.3603, indicating bulls' momentum continues to weaken amid consolidation at highs with pullbacks. The suggested core trading range for LME aluminum is $3,150-3,300/mt.

Macro front: The US Fed's rate decision is about to be released, and the sell-off in US Treasuries has intensified further. On Tuesday, the 10-year Treasury yield rose 5.35bp at one point to 5.041%, and the 30-year Treasury yield rose 5.1bp to 5.399%, both hitting new highs since 2007. The 20-year Treasury yield rose 5.3bp to 5.441%, the highest level since issuance resumed in 2020. The CME FedWatch Tool shows traders see a more than 90% probability of a 25bp rate hike by the Fed in September. China's real estate market has entered a stock era, with second-hand home transaction data released for the first time. From January to August, China's second-hand home transactions by signed floor area reached 549 million m², up 10.6% YoY. New home sales area was 499 million m², down 12.1%. Second-hand home transactions have exceeded new home sales for multiple consecutive months. At end-August, the floor area of commodity residential housing pending sale fell 0.5% YoY, the first decline since September 2021.

Fundamentals: Outside China, aluminum production resumptions continued to ramp up, and expectations of looser supply in the longer term persist. However, LME inventory last week was only 245,000 mt, at an extremely low historical level. Combined with surging oil prices pushing up costs and shipping disruptions in the Strait of Hormuz, geopolitical supply risk premiums have rebounded. Domestically, during the "September peak season," various sectors generally recovered, and social inventory continued destocking. On the inventory side, the destocking trend of aluminum ingot social inventory continued this week. On Monday, aluminum ingot inventory in major domestic consumption areas stood at 776,000 mt, down 20,000 mt from last Thursday and down 26,000 mt WoW from last Monday.

Primary aluminum market: On Tuesday, SHFE aluminum futures fluctuated significantly. Low prices in early trading boosted market buying sentiment, but as futures prices rose, subsequent spot transactions weakened. On Tuesday, A00 aluminum ingot was mainly quoted at a premium of 10-30 yuan/mt against the SHFE aluminum 2610 contract. SHFE aluminum futures remained generally stable. In the central China market, buying sentiment among downstream processing enterprises was lower than the previous day, with a strong wait-and-see atmosphere and a preference for purchasing at low premiums. However, major suppliers held prices firm, and although quotes trended slightly lower, they remained in a relatively high premium range. Ultimately, actual transaction prices in the central China market were concentrated at a discount of 40-80 yuan/mt against the SHFE aluminum 10 contract. On September 15, SMM A00 aluminum was reported at 24,140 yuan/mt, up 60 yuan/mt from the previous trading day, at a premium of 30 yuan/mt against the 2609 contract, up 20 yuan/mt from the previous trading day, and at a premium of 20 yuan/mt against the 2610 contract. SMM central China closed at 24,060 yuan/mt, up 70 yuan/mt from the previous trading day, at a discount of 50 yuan/mt against the 2609 contract, up 30 yuan/mt from the previous trading day, and at a discount of 60 yuan/mt against the 2610 contract. The Henan-Shanghai price spread was -80 yuan/mt, narrowing by 10 yuan/mt from the previous trading day.

South China market: On Tuesday, aluminum prices stopped falling and rebounded slightly, while the spot market remained in the doldrums. An aluminum enterprise in the southwest launched a tender for incremental aluminum ingot supply. Near-term arrivals were tight, but expectations for future arrivals rose. Additionally, after the pullback, absolute prices were at relatively low levels, leading to renewed divergence among suppliers—some continued to hold prices firm while others cut prices to cash in, resulting in somewhat looser spot supply. Some downstream buyers showed willingness to rush to buy amid continuous price rise and continued to restock steadily. However, traders remained cautious, with limited willingness to enter the market and only taking orders as needed. Demand follow-through was insufficient, and transactions weakened marginally. Spot transaction prices were concentrated at a premium of 190-230 yuan/mt against the SHFE aluminum 2609 contract.

Aluminum scrap: On Tuesday, SMM A00 aluminum prices closed at 24,140 yuan/mt, up 60 yuan/mt WoW from the previous trading day, while the aluminum scrap market remained generally stable. In terms of price differences, on September 15, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,509 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was about 1,288 yuan/mt. On the supply side, the tight raw material supply situation remained unchanged, and the scarcity of compliant, invoiced aluminum scrap continued to rise, constraining the operations and purchasing of scrap utilization enterprises. Against this backdrop, some aluminum scrap yards actively sold amid high aluminum prices while reducing purchases and stockpiling, leading to a phased release of market supply. The aluminum scrap market is expected to continue consolidating on a strong note this week. With the September peak season underway, a substantive recovery in downstream end-user orders still needs to be observed. Active selling by scrap yards may persist in the near term, but the tightness in high-quality scrap with invoices is unlikely to see any material 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 activity.

Secondary aluminum alloy:Spot: On Tuesday, the ADC12 market overall held steady, with the SMM ADC12 price unchanged from the previous trading day at 24,200 yuan/mt. Cost side, prices of raw materials such as aluminum scrap saw limited fluctuations overall, and cost support has yet to show any notable change. Demand side, purchases remained primarily need-based, and peak season demand improvement has not yet generated significant growth. With no further drivers from costs or supply-demand, enterprises generally showed weak willingness to adjust prices in the short term, and the market was dominated by a wait-and-see stance and stable pricing.

Overall outlook:The 10-year and 30-year US Treasury yields hit their highest levels since 2007, and the 20-year Treasury yield reached its highest level since issuance resumed in 2020. The CME FedWatch Tool shows a more than 90% probability of a 25 bp rate hike by the US Fed in September, and strong Fed rate hike expectations are weighing on the nonferrous metals sector. China's real estate market has entered an era of existing-home stock, with new home sales area down 12.1% YoY in January-August, and downstream construction-related aluminum processing demand recovery remains sluggish. However, fundamentals continue to destock in China, coupled with peak season demand recovery, providing relatively strong support below. Aluminum prices are expected to continue to consolidate at highs.

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