Inventory destocking continues to support the futures, making it difficult for aluminum prices to break the consolidation range in the short term [SMM Aluminum Morning Briefing]

August 20 SMM Aluminum Morning Briefing

Futures: The most-traded SHFE aluminum contract opened at 23,655 yuan/mt in the night session on August 19, hit a high of 23,720 yuan/mt, a low of 23,630 yuan/mt, and closed at 23,685 yuan/mt, up 0.04% from the previous close. After the sharp decline, futures consolidated at lows, with prices trading below the short-term moving averages MA5, MA10, and MA20, and tested the support around MA60 on the downside. Trading volume during the session contracted somewhat, while open interest edged up, with bulls adding positions at the lows to contest the downside support. Technically, the 4-hour MACD death cross continued, with the green histogram bars remaining at high levels and bearish momentum not yet fully fading. On August 19, LME aluminum opened at $3,215.0/mt, hit a high of $3,239.0/mt, a low of $3,185.0/mt, and closed at $3,238.0/mt, up 0.64% from the previous close. After the previous day's sharp pullback, futures bottomed out and closed with a small bullish candlestick; the rebound was limited in strength, and prices remained below multiple medium-term moving averages. Trading volume expanded on the day, while open interest declined, with the move driven by bears reducing positions and covering. Technically, the daily MACD red bars contracted to near the zero axis, with DIFF and DEA almost converging, intensifying the tug-of-war between longs and shorts and leaving the risk of a death cross intact.

Macro Front: On August 19, 2026, Comrade Yue Xiuhu, a member of the National Development and Reform Commission (NDRC) Party Leadership Group and Vice Chairman, presided over a coordination and scheduling mechanism meeting for major projects under the "six networks." The meeting studied the establishment of a "2+3+N" coordination mechanism for the computing power network, new-type power grid, and next-generation communications network, aiming to intensify overall planning, form synergy, and jointly accelerate the construction of major projects. The US Treasury announced an expansion of long-term nominal Treasury buyback operations. It will at least double the maximum size of a single liquidity support buyback operation for longer-term nominal coupon-bearing Treasuries to at least $4 billion, effective September 9, 2026. Buoyed by this, the yields on the US 10-year and 30-year Treasuries fell sharply. US President Trump posted that Iran failed to seize the opportunity to reach an agreement, so he announced "the most severe economic actions ever imposed on any country" against Iran, calling it an unprecedented "economic war and economic isolation."

Fundamentals: The aluminum extrusion industry is in the off-season. Downstream enterprises are prioritizing the delivery of urgent orders, while the hot weather has further reduced the construction time for downstream projects. Large aluminum extrusion plants have sufficient orders on hand to maintain stable operations, while small and medium-sized manufacturers are proactively controlling the intake of new orders, prioritizing cash flow health. This week, the operating rate of construction aluminum extrusion continued to decline, and the industrial aluminum extrusion segment also weakened, with insufficient new orders for general-purpose industrial aluminum extrusions and a slight decline in operating rates. The industry is currently in a state of low prosperity, with no clear signals of downstream stockpiling for the peak season yet. Inventory side, China's mainstream consumption area aluminum ingot inventory stood at 875,000 mt this Thursday, destocking by 11,000 mt WoW from Monday and 23,000 mt WoW from last Thursday.

Primary aluminum market: The SHFE aluminum 2609 contract futures center moved lower today compared to the same period yesterday. Sustained arrivals in east China prompted active selling sentiment, making it difficult for spot discounts in the region to narrow significantly. Today, A00 aluminum ingot spot premiums were transacted at discounts of 40 yuan/mt to parity. The SHFE aluminum futures pulled back, but trading sentiment in the central China market remained sluggish. With the off-season deepening, buying sentiment from downstream processing enterprises stayed subdued. Against the backdrop of falling aluminum prices, suppliers showed strong intent to hold prices firm, yet overall trading volume remained low. Ultimately, actual transaction prices in the central China market centered around a discount range of 90-120 yuan/mt against the SHFE aluminum 2609 contract. Futures dropped sharply today, but spot cargo in south China remained firm. With futures weakening and the spot-futures price spread having climbed to a relatively high level after yesterday's rise, the release of hedged cargo, including warrants, was notably ample. However, the reality of destocking continued to bolster sellers' confidence, and most sellers opted to control volumes and sell slowly rather than follow the decline with price cuts. Mainstream quotations only edged down to discounts of -10 to 0 yuan/mt, with overall supply largely under control. On the demand side, downstream users steadily restocked at lower levels, with incremental purchases released. Traders, initially cautious and restrained due to fears of high premiums, gradually shifted toward increased efforts to secure cargo to meet rigid demand. Supply and demand improved amid divergence, and overall trading was satisfactory. Spot transaction prices were concentrated at premiums of 75 yuan/mt to 115 yuan/mt against the SHFE aluminum 2609 contract.

Aluminum scrap: Today, SMM A00 spot aluminum prices closed at 23,670 yuan/mt, down another 230 yuan/mt MoM from the previous trading day. Domestic aluminum scrap prices generally followed the decline, with regions that had previously held off on adjustments catching up with the downtrend today. Against the backdrop of persistently rising primary aluminum prices, fluctuations in aluminum scrap prices were relatively limited, as the price transmission mechanism was hindered. However, as primary aluminum pulled back recently, the downside resilience of aluminum scrap provided an opportunity for the price difference between A00 aluminum and aluminum scrap to narrow. Additionally, the supply side remained constrained by the "reverse invoicing" policy, and the scarcity of compliant, invoiced aluminum scrap provided bottom support for scrap prices. Current high-temperature holidays have yet to end, and downstream cast aluminum alloy enterprises' operating rates remain low, with order recovery still requiring time. Scrap utilization enterprises are highly likely to continue purchasing as needed and maintain low inventory strategies, with a concentrated restocking wave still to await. Notably, the price difference between A00 aluminum and shredded aluminum tense scrap has gradually widened, restoring some of the economic advantage of aluminum scrap over primary aluminum. The short-term aluminum scrap market is expected to continue moving sideways at relatively high levels, with weak end-use demand remaining the core factor suppressing prices.

Secondary aluminum alloy: Spot market: Today, the ADC12 market was generally weak, with most enterprises lowering prices by around 100 yuan/mt, while a few temporarily maintained stable prices. The price weakness was mainly driven by the pullback in futures and primary aluminum prices, while end-use demand remained in the off-season with low purchasing enthusiasm, leaving the spot market lacking clear upward drivers. However, the pullback in raw material prices such as aluminum scrap has been relatively limited, and the cost side still provides some support, resulting in an overall pattern of “weakening futures, tepid demand, and a cost floor.”

Comprehensive Outlook:On the macro front, US July inflation data pulled back as expected, and July retail data weakened significantly. The consecutive soft economic data cooled market expectations for a US Fed rate hike in September, with the CME showing the probability of keeping rates unchanged in September rising to 65%, while the probability of a cumulative hike by October remains near 50%, leaving the debate over the terminal rate unresolved. The fundamental deficit persists, with aluminum ingot inventory continuing to destock. On the supply side outside China, UAE’s EGA disclosed the progress of production resumptions at the Al Taweelah aluminum smelter. Currently, 18% of the plant’s 1,262 pots have been restarted, and the pace of resumptions has accelerated compared to previous market expectations, pressuring the supply tightness premium previously priced in. In the short term, aluminum prices are expected to mainly consolidate, with upside room somewhat capped by production resumption expectations.

[The information provided is for reference only. This article does not constitute direct investment research advice. Clients should make decisions prudently and not rely on this as a substitute for independent judgment. Any decisions made by clients are not related to SMM.]