Domestic policies for stabilizing growth continue to take effect, while overseas macro risks have not yet been cleared [SMM Aluminum Morning Meeting Summary]

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5.7 SMM Aluminum Morning Meeting Summary

Futures: The most-traded SHFE aluminum 2506 contract opened at 19,770 yuan/mt, reached a high of 19,860 yuan/mt, a low of 19,760 yuan/mt, and closed at 19,760 yuan/mt, down 0.55%. Trading volume was 50,500 lots, and open interest was 186,000 lots.
LME aluminum opened at $2,431/mt, hit a high of $2,440/mt, a low of $2,428.5/mt, and closed at $2,438/mt, up $11/mt, or 0.45%.

Macro: (1) The Ministry of Commerce, considering global expectations, China's interests, and calls from the US industry and consumers, decided to agree to engage with the US. Vice Premier He Lifeng, as the lead for Sino-US economic and trade relations, will meet with US Treasury Secretary Janet Yellen during his visit to Switzerland. (Neutral ★) (2) Minister of Finance Lan Fuan stated at the 58th Annual Meeting of the Asian Development Bank that China will adopt more proactive macro policies and is confident in achieving a growth target of around 5% in 2025. China will continue to build a unified domestic market and expand high-level opening-up. (Bullish ★) (3) The latest VAT invoice data shows that during the Labour Day holiday, national sales revenue in consumer-related industries increased by 15.2% YoY. The trade-in policy for home appliances and communication equipment spurred robust demand. (Bullish ★)

Fundamentals: (1) According to SMM, on May 6, the total social inventory of secondary aluminum alloy ingots in Foshan, Ningbo, and Wuxi was 8,274 mt, an increase of 135 mt compared to the last trading day before the holiday. (Bearish ★) (2) SMM statistics show that on May 6, the domestic mainstream consumption area aluminum ingot inventory was 636,000 mt, an increase of 22,000 mt compared to the last trading day before the holiday. (Bearish ★)

Primary Aluminum Market: Yesterday, the SHFE aluminum fluctuated significantly in the early session, with prices pulling back sharply after oscillating. Although there was a slight rebound later, the center had already fallen below 20,000 yuan/mt. In the spot market, overall trading activity was moderate. Specifically, in east China, ample spot supply and renewed bearish sentiment among downstream players led to mainly discount transactions. Early in the session, the market gradually shifted to -10 from the SMM average price. SMM A00 aluminum was quoted at 19,850 yuan/mt, down 210 yuan/mt from the previous trading day, at a discount of 20 yuan/mt to the 05 contract, a decrease of 10 yuan/mt from the previous trading day. In the central China market, trading was moderate, with most deals made at the SMM average price. This was mainly due to lower-than-expected inventory buildup in the Gongyi region post-holiday, leading suppliers to attempt to stand firm on quotes.

Secondary Aluminum Raw Materials: Yesterday, the primary aluminum spot fell 210 yuan/mt from pre-holiday levels, with SMM A00 spot closing at 19,850 yuan/mt. The overall scrap aluminum market adjusted downward in line with primary aluminum. After the Labour Day holiday, the operating rate of the secondary aluminum industry declined, and downstream processing enterprises showed weak order releases, with purchases mainly driven by necessity. Baled UBC scrap aluminum was concentratedly quoted at 14,900-15,500 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 15,750-17,250 yuan/mt (excluding tax). By product, the supply of wrought aluminum products such as bare bright aluminum wire and shredded wrought aluminum alloy scrap remained tight, with price adjustments ranging from 50-100 yuan/mt. For baled UBC, except for continued price increases in Jiangxi, other regions generally saw price increases of 100-150 yuan/mt. In the short term, the scrap aluminum market is likely to hover at highs, but if primary aluminum experiences significant fluctuations due to macro factors (such as US Fed policies, geopolitical conflicts) or if domestic secondary aluminum producers cut production, scrap aluminum prices may face temporary pressure.

Secondary Aluminum Alloys: Today, SHFE aluminum opened and fluctuated downward. SMM A00 aluminum price fell 210 yuan/mt to 19,850 yuan/mt, and the domestic SMM ADC12 price was adjusted down by 100 yuan/mt to the range of 20,300-20,500 yuan/mt. In the import market, overseas ADC12 quotes slightly decreased to $2,420-2,440/mt, with the immediate loss for imported ADC12 narrowing to within 600 yuan/mt. On the first trading day after the holiday, the secondary aluminum market continued to be sluggish, with low purchasing willingness from downstream buyers and a strong wait-and-see sentiment. Most enterprises lowered their quotes by 100 yuan/mt, but some maintained stable quotes due to cost support. Given the persistently weak demand, it is expected that ADC12 prices will remain in the doldrums in the short term.

Summary: From a macro perspective, domestic supportive policies, including the Ministry of Finance's commitment to active fiscal policies to drive economic growth, and the 15.2% YoY increase in "Labour Day" holiday consumption (driven by the trade-in policy for home appliances), have boosted market confidence. The Ministry of Commerce's signal for Sino-US economic and trade engagement indicates a stabilizing policy intention. In the overseas market, the uncertainty of Trump's policies and the ongoing Sino-US tariff war, especially the uncertain outcomes of the US Treasury Secretary's talks, have added to market volatility. Fundamentally, the cost side of the aluminum industry remains stable, while the demand side is at a critical period of transition between peak and off-peak seasons. However, except for the aluminum wire and cable sector, which saw an increase in operating rates, all other downstream segments performed poorly in the week before the holiday. Entering May, there is an expectation of declining orders. Driven by pre-holiday restocking, domestic aluminum ingot inventories accelerated destocking at the end of April, approaching the 600,000 mt mark, providing some support to pre-holiday aluminum prices. This year, the arrivals of aluminum products during the Labour Day holiday were lower than the same period last year, with overall inventory at a three-year low, better than expected. The overall inventory buildup was manageable and did not significantly pressure post-holiday aluminum prices. However, the overall macro front still has a bearish outlook, and it is expected that domestic aluminum prices will mainly be in the doldrums.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make prudent decisions and not rely solely on this information. Any decision made by clients is unrelated to SMM.]