Domestic Policy Tailwinds Coexist with Demand Concerns, Aluminum Market to Remain Volatile Before Holiday: Key Takeaways from SMM Morning Aluminum Meeting

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4.28 SMM Aluminum Morning Meeting Summary

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2506 contract opened at 19,950 yuan/mt, with a high of 19,995 yuan/mt, a low of 19,920 yuan/mt, and closed at 19,970 yuan/mt, down 60 yuan/mt or 0.30% from the previous close. LME aluminum opened at $2,458.5/mt on the previous trading day, with a high of $2,468/mt, a low of $2,426/mt, and closed at $2,437.5/mt, down $22/mt or 0.89%.

Macro: (1) European Central Bank President Christine Lagarde stated at the International Monetary Fund's Spring Meetings in Washington that the eurozone's disinflation process "remains on track." She noted that "most underlying inflation indicators suggest that inflation will stabilize around our medium-term target," and "looking ahead, inflation is expected to hover around the 2% target." (Bearish ★) (2) The latest Financial Stability Report released by the US Fed on Friday showed that rising global trade risks, overall policy uncertainty, and the sustainability of US debt topped the list of potential risks to the US financial system. (Bearish ★) (3) The Political Bureau of the CPC Central Committee held a meeting on April 25 to analyze and study the current economic situation and economic work. The meeting pointed out the need to continuously consolidate the stable trend of the real estate market and maintain a stable and active capital market. It emphasized the need to accelerate the implementation of more proactive macro policies, including timely RRR cuts and interest rate cuts. It also called for increasing the income of middle- and low-income groups, vigorously developing service consumption, innovatively launching a "Science and Technology Board" in the bond market, and accelerating the implementation of the "AI+" initiative. For enterprises significantly affected by tariffs, the proportion of unemployment insurance fund subsidies for job stability will be increased. Incremental reserve policies will be promptly introduced based on changing circumstances, and unconventional counter-cyclical adjustments will be strengthened. (Bullish ★)

Fundamentals: (1) Last week, the operating rate of leading downstream aluminum processing enterprises in China rose by 0.1 percentage point MoM to 62.5%, with a differentiated pattern in operating rates across sectors. SMM forecasts that the operating rate may slightly decline by 0.1 percentage point next week to 62.3%. (Bearish ★) (2) On April 25, LME aluminum inventory was recorded at 421,600 mt, a decrease of 2,000 mt or 0.47% from the previous day. In the most recent week, LME aluminum inventory decreased by 12,600 mt or 2.90% in total. In the most recent month, LME aluminum inventory decreased by 51,500 mt or 10.89% in total. (Bullish ★)

Primary Aluminum Market: On Friday, the SHFE aluminum market fluctuated in the morning session, with the most-traded contract trading above 20,000 yuan/mt in the first trading session. In the spot market, transactions in east China and central China were generally sluggish last Friday, mainly due to a large amount of spot market shipments, coupled with aluminum prices returning to the 20,000 yuan/mt level, which weakened downstream purchasing enthusiasm. The market mostly offered discounts to SMM prices. Specifically, spot premiums in east China fell again last Friday, with early morning transactions against SMM at -10. SMM A00 aluminum was reported at 20,070 yuan/mt, up 90 yuan/mt from the previous trading day, at parity with the May contract, narrowing by 10 yuan/mt from the previous trading day. Transactions in central China were sluggish, with weak downstream purchasing at high prices. Early morning transactions against SMM central China were mainly at -10 to parity, with SMM central China A00 aluminum recorded at 19,890 yuan/mt against the SHFE aluminum 2505 contract, up 90 yuan/mt from the previous trading day. The price difference between Henan and Shanghai was -90 yuan/mt, with a discount of 90 yuan/mt against the 2505 contract.

Secondary Aluminum Raw Materials: On Friday, spot primary aluminum prices rose by 90 yuan/mt from the previous trading day, with SMM A00 spot aluminum closing at 20,070 yuan/mt. The overall aluminum scrap market prices remained largely unchanged from the previous trading day last Friday. As the peak season for downstream demand approaches its end, with order volumes affected by diminishing marginal demand, raw material purchases are being made on a need-by-need basis. On Friday, concentrated quotes for baled UBC aluminum scrap ranged from 15,000-15,600 yuan/mt (tax not included), while quotes for shredded aluminum tense scrap were concentrated at 15,850-17,350 yuan/mt (tax not included). By product, the supply of wrought aluminum alloy scrap products such as bare bright aluminum wire and shredded wrought aluminum alloy scrap remains tight, with prices continuing to rise in tandem with aluminum prices. In the short term, the aluminum scrap market is likely to maintain a high-level fluctuation pattern. However, if primary aluminum experiences significant volatility due to macro factors (such as US Fed policies, geopolitical conflicts), or if domestic secondary aluminum enterprises collectively reduce production, aluminum scrap prices may face periodic pressure.

Secondary Aluminum Alloy: On Friday, aluminum prices continued their upward trend, with SMM A00 aluminum prices rising by another 90 yuan/mt from the previous trading day to 20,070 yuan/mt. Domestic SMM ADC12 prices remained stable within the range of 20,500-20,700 yuan/mt. In the import market, overseas ADC12 quotes remained at $2,430-2,450/mt, with immediate losses for imported ADC12 still hovering around 600 yuan/mt. Despite the continuous rise in aluminum prices last week, downstream enterprises' purchase willingness remained lukewarm. As the Labour Day holiday approaches, some die-casting enterprises anticipate pre-holiday stockpiling, which is expected to drive an improvement in market transactions next week. In the short term, secondary aluminum alloy prices are expected to fluctuate within a narrow range, with weak demand and high inventory levels suppressing upside potential, while high aluminum scrap costs provide bottom support. Subsequent focus will be on the pre-holiday stockpiling rhythm and changes in the macro environment.

Summary: At the macro level, a series of domestic policies have played a positive role in stabilizing the real estate market, and the domestic macro bullish atmosphere remains unchanged. In overseas markets, Trump's policy stance has been inconsistent, and there are still many uncertainties from attitude to policy implementation. On the fundamental side, the cost side of the aluminum industry has shown stable performance, while the demand side has exhibited structural recovery characteristics. Benefiting from the continuous influx of new orders in May, there has been a boost in pre-holiday stockpiling demand for raw materials such as aluminum ingots and aluminum billets. The de-stocking of domestic aluminum ingot inventory has provided support for aluminum prices, but suppliers have been actively selling at highs, leading to a pullback in spot premiums. Overall, whether substantial easing in Sino-US trade can be achieved remains to be observed over time. In the short term, the imbalance between bullish and bearish factors is still evident. As the transition between the off-season and peak season approaches and the PV installation rush nears its end, downstream aluminum orders are expected to decline, and the momentum for aluminum prices to rise sharply again is insufficient. It is expected that domestic aluminum prices will fluctuate mainly before the holiday.

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