Expectations of Interest Rate Cut Ease, EU-US Trade Negotiations Remain Unclear [[SMM Aluminum Morning Meeting Summary]]

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5.8 SMM Aluminum Morning Meeting Summary

Futures Market: Yesterday, the most-traded SHFE aluminum 2506 contract opened at 19,465 yuan/mt, with a high of 19,480 yuan/mt, a low of 19,300 yuan/mt, and closed at 19,340 yuan/mt, down 1.55%. Trading volume was 78,000 lots, and open interest was 201,000 lots.
LME aluminum opened at $2,380/mt yesterday, with a high of $2,380.5/mt, a low of $2,377/mt, and closed at $2,379/mt, down $3.5/mt or 0.15%.

Macro: (1) The US Fed kept interest rates unchanged for the third consecutive time, emphasizing in its statement the heightened risks of inflation and rising unemployment. Powell highlighted uncertainties and the low cost of waiting, indicating no rush to cut interest rates. He also stated no intention to meet with Trump proactively, asserting that Trump's calls for rate cuts would not affect the Fed's work. (Bearish★) (2) US Vice President Vance said negotiations with the EU are ongoing, hoping for European markets to open to US goods. US-EU relations have deviated in some areas, and both sides should be encouraged to work together to get back on track. EU Trade Commissioner Šefčovič said that if negotiations fail, the EU will announce details of the next retaliatory measures against US tariffs on Thursday. (Neutral★) 

Fundamentals: (1) According to SMM statistics, as of May 7, aluminum ingot inventory in Guangdong was 242,700 mt; in Wuxi, it was 201,300 mt; and in Gongyi, it was 69,000 mt. The total inventory across the three locations was 513,000 mt, an increase of 200 mt from the previous trading day. (Bearish★) (2) According to SMM statistics, for domestic aluminum billet inventory in two locations, Guangdong's aluminum billet inventory was 86,100 mt, and Wuxi's was 20,700 mt, totaling 106,800 mt, up 600 mt MoM. (Bearish★)

Primary Aluminum Market: Yesterday, SHFE aluminum saw a sharp pullback in the morning session, with a slight rebound at the open but quickly entering a sustained downtrend. The closing price in the first trading session was 260 yuan/mt lower than the opening price. In the spot market, the price decline stimulated downstream procurement sentiment, with some traders reporting an increase in downstream procurement volume. Specifically, in east China, spot supply was ample, with suppliers offering more cargoes. Early in the session, sellers offered at a small discount to SMM and at the average price, with more offerings at the average price. Downstream buyers preferred lower prices, with transactions occurring at a discount of 10 yuan/mt to SMM. Yesterday, SMM A00 aluminum was reported at 19,610 yuan/mt, down 240 yuan/mt from the previous trading day, and at a discount of 20 yuan/mt to the 05 contract, unchanged from the previous trading day. In the central China market, transactions were moderate today with no obvious trend. Most transactions were conducted at the SMM average price, with some suppliers offering quotes at a premium of 10 yuan/mt. This was mainly due to the inventory buildup in Gongyi after the holiday being lower than expected, and the price decline increasing downstream purchases, contributing to a positive outlook for spot premiums.

Secondary Aluminum Raw Materials: The overall prices in the aluminum scrap market followed the decline in primary aluminum. After the Labour Day holiday, the operating rate of the secondary aluminum industry generally declined, with downstream processing enterprises experiencing weak order releases and primarily purchasing based on immediate needs. Yesterday, the centralized quotes for baled UBC aluminum scrap were in the range of 14,800-15,400 yuan/mt (tax-excluded), and for shredded aluminum tense scrap, the centralized quotes were in the range of 15,650-17,150 yuan/mt (tax-excluded). Regionally, Hunan, Jiangxi, and Foshan showed a clear stance of standing firm on quotes, with price adjustments in the range of 100-150 yuan/mt. In other regions such as Shanghai, Jiangsu, Henan, and Anhui, prices followed A00 aluminum with significant declines. By product, prices for shredded aluminum tense scrap, wheel hubs removed from vehicles, etc., remained unchanged from yesterday. For products, the supply of wrought aluminum alloy scrap products such as bare bright aluminum wire and shredded wrought aluminum alloy scrap remained tight, with price adjustments in the range of 50-100 yuan/mt. The price of baled UBC aluminum scrap generally decreased by 100 yuan/mt. In terms of the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai increased by 32 yuan/mt to 1,871 yuan/mt from yesterday. In Foshan, the price difference between A00 aluminum and aluminum extrusion scrap decreased by 112 yuan/mt to 1,386 yuan/mt from yesterday, with a significant narrowing of the price difference between wrought aluminum alloy scrap and aluminum scrap. In the short term, the aluminum scrap market is likely to maintain a pattern of fluctuating at highs. However, if primary aluminum experiences strong fluctuations due to macro factors (such as US Fed policies, geopolitical conflicts), or if domestic secondary aluminum enterprises collectively cut production, aluminum scrap prices may face periodic pressure.

Secondary Aluminum Alloy: Yesterday, SMM A00 aluminum prices fell another 240 yuan/mt from the previous trading day to 19,610 yuan/mt. Domestic SMM ADC12 prices decreased by 100 yuan/mt to the range of 20,200-20,400 yuan/mt. In the import market, overseas ADC12 quotes slightly decreased to $2,410-2,440/mt, with the immediate loss of imported ADC12 remaining around 600 yuan/mt. Today, with the aluminum price decline widening, secondary aluminum smelters continued to follow the decline by 100 yuan/mt. Entering May, the demand for secondary aluminum continued to weaken, and with the persistent price decline, downstream procurement willingness remained low, with a strong wait-and-see sentiment in the market. Against the backdrop of a lack of effective support on the demand side, it is expected that ADC12 prices will remain in the doldrums in the short term.

Summary: On the macro front, the US Fed maintaining interest rates and cooling expectations for rate cuts, coupled with expectations of a stronger US dollar, constrain the upside room for aluminum prices. If US-EU trade negotiations break down, it may trigger tariff retaliation, exacerbating global trade uncertainties and indirectly pressuring the demand outlook for the aluminum market. On the fundamental side, the cost side of the aluminum industry has shown stability, with the demand side at a critical juncture between the off-season and peak season. However, except for aluminum wire and cable, downstream sectors performed poorly in the week before the holiday. Entering May, there are expectations of a continued decline in subsequent orders for aluminum downstream. Driven mainly by pre-holiday restocking demand, the destocking of domestic aluminum ingot inventory 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. This Labour Day holiday, domestic aluminum product arrivals were lower than the same period last year, with overall inventory at a relatively low level compared to the same period in the past three years. Inventory performance was slightly better than expected, with overall controllable inventory buildup, not causing significant pressure on aluminum prices after the holiday in the short term. However, there is still an overall bearish expectation on the macro front. It is expected that domestic aluminum prices will mainly operate in a weak oscillation pattern, requiring continuous attention to the progress of US-EU tariff negotiations and the implementation of domestic policies.

[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.]