Slowdown in Domestic Primary Aluminum Supply Growth in August

The aluminum market experienced a challenging month in July, with both domestic and overseas factors contributing to a decline in prices. The main force of Shanghai aluminum fell below 19,000 yuan/ton, reaching a low of 18,785 yuan/ton, marking a 5.7% decrease for the month. Similarly, LME aluminum hit a new low in the past five months at 2,209.5 US dollars/ton, influenced by macro factors and poor demand.

In the domestic market, the average monthly price of SMM A00 aluminum spot was approximately 19,737 yuan/ton, down 4.2% month-on-month. The spot market experienced abundant circulation and continued to be discounted, with an average monthly discount of 47.4 yuan/ton. The supply side increment and the off-season of demand constrained the trend of aluminum prices in July.

Looking ahead to August, several factors will continue to shape the aluminum market. On the supply side, domestic aluminum production has been on the rise, with the total domestic output of aluminum reaching 3.68 million tons in July, a year-on-year increase of 3.2%. The total domestic output from January to July reached 24.86 million tons, a year-on-year increase of 5%. In August, the month-on-month growth rate of the domestic supply side is expected to slow down significantly, with a projected year-on-year increase of about 1.9%.

In terms of primary aluminum imports, the first half of 2024 saw a significant increase in domestic primary aluminum imports, reaching a new high. While the primary aluminum import window has remained closed since April, long orders continue to enter the Chinese market each month. It is expected that the third quarter may maintain the main import volume of long orders.

On the demand side, the domestic aluminum downstream entered the off-season in July, with weak terminal demand for automobiles and photovoltaics. The operating rate of aluminum processing enterprises was also weak. While policy initiatives may boost demand in the future, it will take time for these measures to impact the processing and manufacturing industry.

Inventory performance has been a concern, with the total inventory quickly crossing the 800,000-ton mark in July, 300,000 tons higher than the same period last year. As of August 1, 2024, the total social inventory of aluminum ingots was at 814,000 tons, with the domestic circulating aluminum inventory at 688,000 tons. The inventory performance in early August is not optimistic, with a comprehensive accumulation of inventory in mainstream consumption places in China.

On the macro front, the Fed's July interest rate meeting maintained the policy rate unchanged but signaled a dovish tone, paving the way for a potential rate cut in September. Additionally, concerns about the job market and macroeconomic risks have increased the probability of interest rate cuts in September to 100%. The domestic manufacturing PMI was 49.4% in July, affected by factors such as the traditional off-season of production and extreme weather conditions.

Looking ahead to August, while the Fed is expected to cut interest rates and economic recession expectations may suppress commodities, macro uncertainty remains. The domestic aluminum market is expected to continue facing supply and demand off-season mismatch state, with social inventory of aluminum ingots likely to remain high throughout the month.

In conclusion, while it may be difficult for supply and demand dynamics to drive aluminum prices upward in August, the current cost side of the aluminum market plays a supporting role. With these factors in mind, it is expected that domestic aluminum prices may remain range-bound in August. However, it is important to monitor the progress of domestic stimulus policies and consider potential risks such as the actual impact of domestic carbon emission policies on the supply side and overseas macro system risks.

In summary, while challenges persist in the aluminum market, careful monitoring of supply and demand dynamics and macroeconomic factors will be crucial in navigating the market in the coming month.