Market Expects Weakening Consumption, Downside Risks in Prices Remain [SMM Aluminum Futures Brief Commentary]

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SMM, May 7:

Today, the most-traded SHFE aluminum 2506 contract opened at 19,770 yuan/mt, with a high of 19,905 yuan/mt, a low of 19,415 yuan/mt, and closed at 19,465 yuan/mt, down 2.04%. Trading volume was 267,000 lots, and open interest was 195,000 lots.

SMM Commentary: From a macro perspective, domestic supportive policies are providing a floor, with the Ministry of Finance explicitly stating that it will safeguard economic growth through proactive fiscal policies. This, combined with a 15.2% YoY increase in consumption data during the Labour Day holiday (indicating the effectiveness of the home appliance replacement policy), has injected confidence into the market. The Ministry of Commerce has signaled Sino-US economic and trade engagement, indicating the government's intention to maintain stability. In overseas markets, the unpredictability of Trump's policies and the lingering concerns over the Sino-US tariff war continue to exert pressure, particularly as the outcomes of the US Treasury Secretary's talks remain uncertain, exacerbating market volatility risks. On the fundamental front, the cost side of the aluminum industry has remained stable, while the demand side is at a critical juncture between the off-season and peak season. However, except for the aluminum wire and cable sector, which saw an uptick in operating rates against the trend in the week before the holiday, downstream sectors generally performed poorly. Entering May, there are expectations of a decline in subsequent orders for aluminum downstream products. Driven mainly by pre-holiday restocking demand, the destocking of domestic aluminum ingot inventories accelerated again at the end of April, approaching the 600,000 mt mark, providing a certain degree of upward support for aluminum prices before the holiday. Domestic aluminum product arrivals during this year's Labour Day holiday were lower than those of the same period last year, with overall inventories at their lowest level in the same period over the past three years. Inventory performance was slightly better than expected, with overall inventory buildup being controllable, exerting no significant pressure on aluminum prices in the short term after the holiday. However, there is still a general bearish expectation on the macro front, and domestic aluminum prices are expected to remain in the doldrums.

Today, the most-traded alumina 2509 contract opened at 2,686 yuan/mt, with a high of 2,738 yuan/mt, a low of 2,682 yuan/mt, and closed at 2,704 yuan/mt, up 0.45%. Trading volume was 458,000 lots, and open interest was 298,000 lots.

SMM Commentary: With the commissioning of new capacity and the resumption of production from maintenance, the operating capacity of alumina has rebounded significantly, with a WoW increase of 3.48 million mt/year in the last week before the holiday. In the short term, some alumina refineries have plans for maintenance and production cuts, but at the same time, new alumina capacity will further ramp up production, and the operating capacity of alumina may exhibit slight fluctuations. On the cost side, caustic soda prices have remained largely stable, while bauxite prices have decreased somewhat, leading to a decline in alumina costs and alleviating the loss pressure on alumina refineries. In the futures market, the downward shift in cost lines combined with a slight improvement in supply has led to a generally weak performance in the futures market recently, with some transactions occurring for warrant cargoes and a single-day decrease of 11,500 mt in the total registered warrant volume.Overall, the tightening of spot alumina supply caused by the concentration of maintenance and production cuts in the early stage is expected to ease, and short-term prices are expected to fluctuate.

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