Policy Expectations and Low Inventory Support
In the short term, the tariff impact has slightly eased, domestic policy expectations remain supportive, and companies have stocking demand before the May Day holiday. With continuous inventory drawdown, aluminum prices may maintain a strong trend.
Recently, tariff policies have significantly affected aluminum prices. At 3:00 AM Beijing time on April 3, the US "reciprocal tariff" was officially announced. Trump declared a minimum benchmark tariff of 10% on trading partners and imposed higher "reciprocal tariffs" on certain partners, including an additional 34% tariff on China on top of the previous 20%, exceeding expectations. The benchmark tariff took effect on April 5, and the reciprocal tariff on April 9. In response, China immediately implemented countermeasures, imposing an additional 34% tariff on all US-origin imports from 12:01 AM on April 10. The tariff policies intensified global trade risks, raising concerns about a global economic recession and increasing risk-off sentiment, which pressured aluminum prices. On April 7, aluminum prices plummeted, with the opening price near the lower limit, and the most-traded contract hitting a low of 19,000 yuan/mt.
Starting April 9, the US imposed an additional 50% import tax on Chinese goods, bringing the cumulative new tax rate to 104%. China immediately retaliated by raising the previous 34% tariff to 84%. At midnight on April 10, Trump announced an increase in tariffs on China to 145%, and China responded by raising tariffs on the US to 125%. Meanwhile, the US announced a 90-day tariff suspension for countries not taking retaliatory actions, and the EU postponed its countermeasures against US tariffs, originally scheduled for April 15, by 90 days. The US later exempted some goods from reciprocal tariffs. Globally, the reciprocal tariff impact temporarily eased, narrowing aluminum price fluctuations.
Since products already subject to steel and aluminum tariffs and auto tariffs are exempt from reciprocal tariffs, the sharp fluctuations in aluminum prices mainly stem from the uncertainty in the global trade landscape caused by tariff policies. In terms of actual demand impact, on one hand, China's direct aluminum semis exports to the US are low, accounting for only about 4% of total exports in 2024, while aluminum products exports are slightly higher at around 16%, with limited overall impact on direct exports. On the other hand, China's exports to the US have significantly declined in recent years, but exports to Southeast Asia, Mexico, and other regions have risen, with some products eventually re-exported to the US market. The US reciprocal tariff policy imposes different tariff rates on various countries, and whether production origin tracing will be implemented remains uncertain. Therefore, during the tariff suspension, the progress of negotiations between major re-exporting countries and the US needs close attention to assess the impact on China's aluminum exports.
Additionally, China's aluminum products indirectly exported to the US through end-user goods like automobiles will also be affected. Institutional data shows that China's indirect aluminum exports (aluminum content in major end-user goods) exceed 3 million mt, with about 15% exported to the US. On April 15, Trump indicated consideration of a temporary exemption for auto and parts import tariffs, which, if implemented, would benefit indirect aluminum exports. However, the US tariff policy remains volatile, and uncertainty persists. Facing external shocks from US tariff policies, the early introduction and strengthening of domestic supportive policies are anticipated.
On the fundamentals side, domestic aluminum operating capacity remains high, with the capacity utilization rate staying above 95%. Under capacity ceiling constraints, the supply side remains relatively stable, exerting limited pressure on aluminum prices. On the demand side, the operating rate in the cable sector continues to rise, supported by orders from power grid projects. PV extrusions maintain a high operating rate due to the distributed PV installation rush, while construction extrusions show no significant new orders. The operating rate of aluminum plate/sheet, strip, and foil companies continues to decline due to weak seasonal demand, volatile aluminum prices, and intensified trade frictions. With the US reciprocal tariff suspension for other countries lasting 90 days, domestic re-exports have alleviated some export pressure, but export orders still face tariff impacts, showing a certain degree of decline. In the short term, downstream demand remains supportive, with the downward shift in aluminum price center boosting purchasing interest, and aluminum ingot inventory continues to draw down. Institutional data shows that as of the week of April 17, domestic aluminum ingot social inventory stood at 689,000 mt, down 55,000 mt WoW, already below the same period last year, with low inventory providing strong support for aluminum prices.
On the cost side, alumina prices continue to fluctuate at lows, and production cuts from some companies' maintenance cannot reverse the overall supply surplus. Although aluminum smelter profits have slightly declined, they remain high. Therefore, caution is needed as high smelter profits could become a source of bearish sentiment.
In summary, supply remains stable, demand is underpinned by the PV installation rush and power grid investments, and aluminum ingot inventory continues to draw down, providing short-term fundamental support for aluminum prices. However, as the PV installation rush gradually ends, PV sector demand for aluminum may significantly shrink, and the impact of tariff policies on export orders will gradually manifest, potentially leading to marginal weakening of fundamental support for aluminum prices. From a macro perspective, trade negotiations between the US and various countries have commenced, but progress remains limited. Trump claimed a deal with China within a month, but given the US policy volatility, global trade uncertainty remains high. Domestically, Q1 economic data showed positive trends, and expectations for policy easing have weakened, but the Central Politburo meeting at month-end will maintain policy expectations as a market support. In the short term, the tariff impact has slightly eased, domestic policy expectations remain supportive, and companies have stocking demand before the May Day holiday, with inventory drawdown supporting aluminum prices. Short-term aluminum prices may maintain a strong trend, with support at 19,500 yuan/mt.
