September sees consumption improvement and aluminum enters destocking phase, aluminum prices expected to gain support from fundamentals

Supply side: In August, domestic aluminum supply remained stable overall, with no significant capacity changes. Sichuan experienced power shortages during the month, but aluminum enterprise production was not affected. According to SMM calculations, domestic operating capacity of aluminum was approximately 43.49 million mt by the end of August. Total domestic aluminum production reached approximately 3.689 million mt in August (31 days), flat MoM and up 1.8% YoY. From January to August, total domestic aluminum production reached 28.545 million mt, up 4.6% YoY. Entering September, domestic aluminum operating capacity remained stable with minor changes. There may be small resumption expectations in Sichuan and Guizhou during the month, but with minimal impact on production. SMM expects domestic aluminum production in September (30 days) to increase by approximately 1.37% YoY to around 3.57 million mt. On the import side: In August, the domestic primary aluminum import window remained closed, but import losses continued to narrow at the beginning of the month. Some arbitrage sources may have entered the domestic spot market, with a slight increase in primary aluminum spot net imports expected in August.

Demand side: In August, domestic downstream consumption was in the off-season, particularly in early August when many regions experienced high temperatures affecting construction and automotive end-user sectors. The end market demand was weak, and many aluminum processing enterprises' operations decreased. By late August, orders from the photovoltaic and automotive sectors improved, leading to slight recovery in some processing enterprises' operations. The plate/sheet, strip, and foil segment saw weak terminal demand, with declining orders for most enterprises. In August, domestic aluminum semis exports increased slightly MoM, mainly due to multiple countries planning to impose tariffs on Chinese aluminum semis, leading to proactive restocking by some overseas end-users, driving improvements in domestic aluminum semis exports. According to customs data, China's exports of unwrought aluminum and aluminum semis reached 594,000 mt in August, up 1.19% MoM and up 21.2% YoY. From January to August, the cumulative export volume reached 4.352 million mt, up 15.0% YoY.

Summary: As we enter September (September 11 - October 11), on the macro front, data released by the United States on August labor figures, ISM Manufacturing PMI, initial jobless claims, and the economic Beige Book, all point to further marginal economic weakening. The market is awaiting the US August CPI data, which could confirm whether the soft landing expectation can be fully realized before the Fed meeting. Domestically, China's August manufacturing PMI fell to 49.1 MoM, with fiscal policy continuing to amplify, maintaining the main tone of steady and positive domestic economic development. On the fundamentals side, no significant growth is expected in domestic aluminum in September. Some new capacities are expected to start production by the end of the year, and downstream operations are improving, with terminal demand in automotive and photovoltaics picking up. The aluminum market is entering a destocking cycle with good support from the supply and demand fundamentals. In the short term, given favorable macro and demand expectations in September, aluminum prices may generally trend upwards. However, considering the declining production expectations in Yunnan and some new capacities coming online in Q4, market concerns about supply surplus remain. SMM expects the most-traded SHFE aluminum contract to fluctuate between 18,750 and 20,100 yuan/mt, with further attention on macro sentiment and changes in domestic and overseas aluminum consumption.