Weekly price spread between A00 aluminum and aluminum scrap narrows, while the decline in social inventory of aluminum alloy widens [SMM cast aluminum alloy morning comment]

Oct 16 SMM cast aluminum alloy morning comment

Futures: Overnight, the most-traded AD2612 cast aluminum alloy contract opened at 22,685 yuan/mt, dipped to a session low of 22,640 yuan/mt in early trading before quickly rebounding, shot up to 22,850 yuan/mt, then pulled back to around 22,700 yuan/mt and moved sideways, closing at 22,750 yuan/mt, up 60 yuan/mt from yesterday's settlement price, a gain of 0.26%. Night session volume totaled 6,632 lots, and open interest increased by 274 lots to 21,256 lots. Rising prices with rising open interest suggest tentative bull positioning.

Basis daily: According to SMM data, on Oct 15, the theoretical premium of SMM ADC12 spot prices over the 10:15 closing price of the most-traded cast aluminum alloy contract (AD2612) widened to 1,675 yuan/mt.

Warrant daily: SHFE data shows that on Oct 15, total registered cast aluminum alloy warrants stood at 14,361 mt, down 62 mt from the previous trading day.

Inventory: On Oct 15, SMM data showed domestic cast aluminum alloy ingot social inventory this week at 25,200 mt, down 5,800 mt WoW, extending the destocking trend with a widening decline.

Aluminum scrap: This week, the aluminum scrap market fluctuated at highs, with the price center shifting lower alongside primary aluminum but showing notable resilience. The price difference between A00 aluminum and aluminum scrap narrowed significantly: on Oct 15, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was about 2,155 yuan/mt, narrowing 337 yuan/mt from last Thursday; the price difference between A00 aluminum and shredded aluminum tense scrap was about 711 yuan/mt, narrowing 615 yuan/mt WoW. Supply side, tax audits in central China continued to deepen, making compliant invoiced aluminum scrap increasingly scarce, and enterprises holding invoices showed strong willingness to hold prices firm. On imports, this week, imported shredded aluminum prices at Ningbo Port and Tianjin Port were recorded at 20,970 yuan/mt (tax inclusive) and 21,020 yuan/mt (tax inclusive), respectively, down 100 yuan/mt from last week. In the short term, downside for the aluminum scrap market is limited. Supply side, the scope and intensity of tax audits remain the core variable, and the tightness in compliant invoiced cargo is unlikely to ease. Demand side, downstream scrap utilization enterprises are running at moderate operating rates during the peak season, and with both supply and demand tight, price support is expected to strengthen further. In addition, the price difference between A00 aluminum and aluminum scrap has narrowed again to historical lows, weakening the cost advantage of aluminum scrap and bringing primary aluminum substitution back to the discussion table. Going forward, focus on the spread of tax audits, changes in invoicing quotas across regions, and downstream operating pace.

Silicon metal: This week, the silicon metal market reopened after the holiday, with spot price center slightly firm and futures prices rising first then falling. As of Oct 15, SMM oxygen-blown #553 silicon in east China was at 9,450-9,550 yuan/mt, up 50 yuan/mt WoW, and #441 silicon was at 9,500-9,700 yuan/mt, up 50 yuan/mt WoW. On market quotes and transactions, silicon metal fundamentals remained firm after the holiday. On one hand, electricity costs held steady, while transportation costs for raw materials and products increased, raising overall production costs. On the other hand, supply growth for silicon metal was constrained, and spot circulation of cargo at suitable market prices was tight. Downstream users mainly digested earlier inventory or made restocking purchases to meet immediate needs.

Markets outside China: On imports, overseas ADC12 offers fell to the $3,050-3,130/mt range, with import break-even still near the break-even line.

Summary: On Thursday, ADC12 market quotes weakened overall, with SMM ADC12 prices falling 200 yuan/mt from the previous day to 24,300 yuan/mt. The current weakness in aluminum prices is fueling bearish market sentiment, while downstream order improvement remains limited, leaving spot prices lacking upward momentum. However, relatively firm aluminum scrap prices, tight compliant raw material supply, continued destocking of social inventory, and limited import replenishment still provide some support to prices. Going forward, focus on aluminum and aluminum scrap price trends, changes in market sentiment, and improvements in downstream orders and purchasing demand.

[Data source statement: Except for publicly available information, all other data are processed by SMM based on public information, market communication, and SMM's internal database models, and are for reference only and do not constitute decision-making advice.]