Dual Pressure from Policy and Demand, Weekly Operating Rate of Secondary Aluminum Producers Pulled Back [SMM Cast Aluminum Alloy Morning Comment]

5.15 SMM Cast Aluminum Alloy Morning Comment

Futures: The most-traded aluminum alloy 2607 contract opened at 23,380 yuan/mt in the night session, hitting a high of 23,380 yuan/mt and a low of 23,240 yuan/mt, before closing at 23,290 yuan/mt, down 165 yuan/mt or 0.70% from the previous trading day. After the night session opened, bulls lacked momentum, and prices fluctuated downward, running below the average price line throughout the day. Trading volume was 1,726 lots, and open interest edged up by 43 lots to 13,829 lots. Futures struggled to rebound, bearish sentiment persisted, and futures prices were under pressure in the short term, with downside support yet to be tested.

Spot-futures price spread daily report: According to SMM data, on May 14, the SMM ADC12 spot price theoretical premium over the most-traded cast aluminum alloy contract (AD2606) at the 10:15 closing narrowed to 300 yuan/mt.

Weekly operating rate: This week, the operating rate of secondary aluminum industry leaders fell 0.6 percentage points WoW to 56.4%. Operating rates showed mixed performance among enterprises during the week: the fading impact of the Labour Day holiday and capacity expansion at individual enterprises drove partial recovery in operating rates, but production cuts were more widespread across the industry. Production cuts were mainly dragged by two factors: first, weakening demand. As the industry entered the off-season, orders from downstream die-casting enterprises remained sluggish, with procurement dominated by just-in-time, small-batch purchases. Second, policy tightening. The reverse invoicing policy was further tightened, making it more difficult to obtain invoiced raw materials, passively raising procurement costs for enterprises, with regions such as Hubei and Anhui notably affected, where insufficient compliant raw materials forced some enterprises to cut or halt production. If demand weakens again and policy restrictions persist, the industry operating rate is expected to have further downside room in the short term.

Social inventory: As of this Thursday, social inventory of secondary aluminum alloy ingots in major consumption areas in China was 58,700 mt, up 1,400 mt WoW, marking five consecutive weeks of inventory buildup. The off-season effect continued to deepen, with insufficient downstream purchase willingness, shipments under pressure, and the inventory buildup trend continuing.

Aluminum scrap: Supply side was significantly constrained by policies, with strict enforcement of reverse invoicing leading to a shortage of compliant invoice sources, rising industry costs, and yards generally holding back from selling and holding prices firm. According to survey feedback, warehouse inflows at mainstream yards in east China declined YoY, showing a slight inventory buildup trend, while aluminum tense scrap inventory pulled back somewhat. On the import side, persistently high LME prices creating inverted economics made import traders more cautious, and subsequent imports are expected to pull back. Demand side entered the traditional consumption off-season, with secondary aluminum enterprise operating rates pulling back slightly. Tax enforcement pressure combined with low-price difficulties caused some enterprises to cut or halt production, further weakening market demand. The aluminum tense scrap segment maintained a low-inventory just-in-time procurement model, and while the wrought aluminum alloy scrap segment received slight support from sheet and strip operating rates, overall strength was limited, with sluggish market transactions and strong wait-and-see sentiment. Next week, the aluminum scrap market is expected to continue fluctuating at highs, with shredded aluminum tense scrap (priced based on aluminum content) mainstream range maintained at 20,500-21,300 yuan/mt (tax-exclusive).

Silicon metal: Spot prices were mostly stable this week, with prices for some specifications edging down slightly. As of May 14, SMM east China oxygen-blown #553 silicon was at 9,200-9,400 yuan/mt, down 50 yuan/mt WoW; #441 silicon was at 9,400-9,600 yuan/mt, flat WoW; #3303 silicon was at 10,100-10,300 yuan/mt, flat WoW. In terms of market transactions, downstream users showed strong wait-and-see sentiment amid this round of price fluctuations, with transactions mainly driven by just-in-time restocking. Supply side, temporary shutdowns for furnace maintenance at individual northern silicon plants this week affected short-term production, with supply expected to gradually recover next week. Combined with expectations for production increase at some southwestern silicon enterprises in June, the certainty of increased silicon metal supply in June is relatively strong. Supply and demand were basically balanced in May, while supply increments are expected to exceed demand increments in June. From an industry fundamentals perspective, weak demand kept silicon metal prices soft before shifting to moving sideways, with attention on whether new price drivers emerge subsequently.

Markets outside China: Current import ADC12 quotes rose to a high range of $3,360-3,450/mt, with immediate import losses exceeding 3,000 yuan/mt, and the theoretical import window remained closed.

Summary: ADC12 prices are expected to move sideways in the short term. High-level cost support combined with tightened reverse invoicing and expectations for production cuts at some enterprises limit downside room; however, demand side is unlikely to see significant improvement in the short term, and inventory remains in a buildup cycle, which will continue to suppress upside room. Subsequent focus should be on end-use consumption recovery and the further impact of policies on supply-side production cut scale.

[Data source disclaimer: Data other than publicly available information is derived from public information, market communication, and SMM's internal database models, processed by SMM for reference only and does not constitute decision-making advice.]