Lower Costs Coupled With Weaker-Than-Expected Demand Push Secondary Aluminum Prices Down[SMM Analysis]

This week, China’s aluminum scrap market followed primary aluminum in wide swings, with the overall market in a weak consolidation pattern and price resilience standing out. As of March 26, the SMM A00 aluminum price closed at 23,510 yuan/mt, down 980 yuan/mt from last Thursday. During the week, primary aluminum alternated between gains and losses, and aluminum scrap prices adjusted in tandem. Some alloy plants in Jiangxi and Anhui sharply raised prices for aluminum tense scrap to repair the price spread. In terms of the price difference between primary metal and scrap, as of March 26, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 2,693 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 1,403 yuan/mt. On the supply side, amid tighter regulation on reverse invoicing, compliant cargoes with invoices remained in tight supply, while sentiment to hold back cargoes strengthened at scrap yards, significantly reducing the room for price declines. On the demand side, the peak season of “Golden March and Silver April” fell short of expectations, with end-user order releases lagging behind seasonal patterns. Secondary aluminum enterprises maintained purchasing as needed and low-inventory operations, showing limited acceptance of high prices, and overall market transactions were sluggish. The aluminum scrap market is expected to maintain its high-level consolidation pace next week, with the mainstream range for shredded aluminum tense scrap (water-price basis) likely to fluctuate between 19,800-20,500 yuan/mt (ex-tax). Supply side, policy constraints are unlikely to ease in the short term, and tight compliant supply coupled with scrap yards holding back cargoes will continue to underpin prices. Demand side, the peak-season recovery fell short of expectations, downstream wait-and-see sentiment amid high prices remained strong, and large-scale restocking lacked momentum, with just-in-time procurement still dominant. Primary aluminum will likely remain subject to fluctuations driven by geopolitical and macro factors, and the overall tug-of-war between sellers and buyers pattern is expected to continue, with caution warranted against the risk of wild swings in prices. 

This week, the secondary aluminum alloy market remained in the doldrums overall, with the price center moving lower. As of Thursday, the SMM ADC12 price fell yuan 700/mt from last Thursday to yuan 24,300/mt. Cost side, aluminum prices pulled back during the week, and the cost center of aluminum scrap moved lower accordingly. Although the decline briefly halted mid-week, overall support weakened; meanwhile, finished alloy ingot prices fell faster, leading to some narrowing in the industry's theoretical profit. Demand side, the peak-season recovery fell short of expectations. Some downstream enterprises still faced profit pressure and were relatively sensitive to raw material prices, continuing just-in-time procurement with low willingness to stockpile. In addition, some die-casting enterprises reliant on Middle East exports saw orders decline significantly due to hindered transportation, and suspended production or cut production, dragging on shipments by upstream secondary aluminum enterprises. In terms of supply, the operating rate of leading enterprises in the secondary aluminum industry held steady WoW at 59.5% this week. Affected by both weaker-than-expected downstream demand recovery and wild swings in aluminum prices, enterprises saw insufficient new orders, and the rebound in operating rates was hindered. Inventory side, social inventory continued to destock rapidly. According to SMM data, as of March 26, inventory decreased 13,900 mt from last Thursday to 58,900 mt; the inventory decline was mainly driven by a widening spot-futures price spread during the week, which boosted spot-futures traders' willingness to ship and accelerated inventory outflows; meanwhile, against a backdrop of weak demand, low-price sales volume and intensified competition for orders further sped up the pace of inventory digestion. Import side, current ADC12 quotes outside China dropped back slightly to $3,220-3,260/mt, while immediate import losses remained around yuan 2,000/mt, and the theoretical import window stayed closed. Short term, although cost support has weakened somewhat, it still remained in place; however, demand performance was weak and provided limited support to prices. ADC12 prices are expected to continue to fluctuate rangebound in the short term.