Expectations of Weakening Market Demand Grow Stronger, with Short-Term Domestic Aluminum Prices Expected to Fluctuate Considerably [[SMM] Morning Aluminum Meeting Summary]

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5.9 SMM Aluminum Morning Meeting Summary

Futures: Yesterday, the most-traded SHFE aluminum 2506 contract opened at 19,560 yuan/mt, with a high of 19,615 yuan/mt, a low of 19,530 yuan/mt, and closed at 19,570 yuan/mt, up 0.46%. Trading volume was 48,000 lots, and open interest was 191,000 lots.
LME aluminum opened at $2,408/mt yesterday, with a high of $2,414/mt, a low of $2,408/mt, and closed at $2,410/mt, down $2/mt, or 0.08%.

Macro: (1) The UK and the US reached an agreement on the terms of a tariff trade deal, with the UK government agreeing to make concessions on imports of US food and agricultural products in exchange for the US reducing tariffs on UK car exports. The US will lower tariffs on UK-made cars to 10% and reduce tariffs on steel and aluminum to zero. (Bullish★) (2) The Ministry of Commerce once again responded to the high-level economic and trade talks between China and the US, stating that if the US wants to resolve issues through negotiations, it must be prepared to correct its wrong practices and cancel unilateral tariff hikes, and take action. China will not sacrifice its principles to seek any agreement. (Neutral★)

Fundamentals: (1) According to SMM statistics, on May 8, domestic mainstream consumption areas' aluminum ingot inventory was 620,000 mt, down 16,000 mt from Tuesday, and up 6,000 mt from before the holiday (April 30). (Bullish★) (2) On May 8, SMM statistics showed that Shanghai Bonded Zone's aluminum inventory was 96,600 mt, Guangdong Bonded Zone's inventory was 19,700 mt, totaling 116,300 mt, up 6,800 mt WoW. (Bearish★) (3) According to SMM statistics, China's aluminum plate/sheet and strip production in April 2025 was 1.186 million mt, with an operating rate of 67.23%, down 2.31 percentage points MoM; aluminum foil production was 450,200 mt, with an operating rate of 70.52%, down 6.05 percentage points MoM. (Bearish★)

Primary aluminum market: Yesterday, SHFE aluminum opened in the morning, continuing the low level of around 19,400 yuan/mt from the night session, with downstream buying the dip being active, and social inventory destocking stimulating a rebound in the futures market. The closing price in the first trading session returned to 19,630 yuan/mt. In the spot market, price declines stimulated downstream buying sentiment, with discounts narrowing in east China and Gongyi markets. Specifically, trading sentiment in east China was good yesterday, with early inquiries reaching the average price in the east China market, and suppliers' sentiment to stand firm on quotes strengthened, with transactions concentrated at SMM +10 yuan/mt, and some brands at SMM +20 yuan/mt. Yesterday, SMM A00 aluminum was quoted at 19,620 yuan/mt, up 10 yuan/mt from the previous trading day, at a discount of 10 yuan/mt to the 05 contract, narrowing by 10 yuan/mt from the previous trading day. In the central China market, supply was tight, with some hedging positions standing firm on premiums, and the futures market declined, with transactions in the central China market concentrated at SMM central China +20, +30. SMM central China A00 recorded 19,600 yuan/mt against the SHFE 2505 contract, up 40 yuan/mt from the previous trading day, with the Henan-Shanghai price difference at -20 yuan/mt, narrowing by 30 yuan/mt from the previous trading day, at a discount of 30 yuan/mt to the 2505 contract.

Secondary aluminum raw materials: Yesterday, spot primary aluminum rose by 10 yuan/mt from the previous trading day, with SMM A00 spot closing at 19,620 yuan/mt. The overall price of aluminum scrap remained unchanged, and the operating rate of the secondary aluminum industry declined after the Labour Day holiday, with downstream processing enterprises' orders being weak, and purchases mainly for rigid demand. Yesterday, baled UBC was quoted at 14,800-15,400 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 15,650-17,150 yuan/mt (excluding tax). By region, prices in Hunan, Jiangxi, Foshan, and Hubei remained unchanged, while prices in other regions such as Shanghai, Jiangsu, and Henan followed A00 with slight adjustments, with price adjustments ranging from 10-30 yuan/mt. By product, shredded aluminum tense scrap, wheel hub removed from vehicle, bare bright aluminum wire, and shredded wrought aluminum alloy scrap prices remained unchanged from yesterday. In the short term, the aluminum scrap market is likely to hover at highs, but if primary aluminum experiences strong fluctuations due to macro factors (such as US Fed policy, 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 price was adjusted up by 10 yuan/mt to 19,620 yuan/mt from the previous trading day, while domestic SMM ADC12 price remained stable in the range of 20,200-20,400 yuan/mt. In the import market, overseas ADC12 was quoted at $2,410-2,440/mt, with the immediate loss of imported ADC12 still around 600 yuan/mt. Yesterday, aluminum prices stabilized after falling, and most secondary aluminum plants resumed stable pricing. Entering May, the downstream of secondary aluminum is transitioning to the off-season, and market transactions are weak. However, due to slightly tight raw material circulation, cost support for prices has strengthened. In the short term, ADC12 prices will remain in the doldrums.

Summary: From a macro perspective, during the period, China agreed to engage with the US, but there is no clear result yet, and US Fed's Powell stated that there is no rush to cut interest rates, with overseas macro sentiment being bearish; domestically, three departments issued a package of financial policies to stabilize the market and expectations, and the central bank announced ten policy measures, with the domestic macro bullish sentiment unchanged, and the subsequent impact of policy benefits still needs to be observed. From a fundamental perspective, the sharp pullback in aluminum prices after the holiday stimulated downstream buying sentiment, and domestic aluminum ingot social inventory shifted from buildup to destocking after the holiday, with the inventory buildup inflection point yet to come, providing support for aluminum prices. However, it is worth noting that entering mid-to-late May, the transition between peak and off-seasons, coupled with the end of the PV installation rush and the decline in export orders, the market has a strong expectation of weakening demand, reducing the upward momentum of aluminum prices, and bearish funds entered the market. Overall, domestically, the transmission of macro bullish policies still takes time, while the tariff war has no result yet, and bearish impacts remain; fundamentally, domestic aluminum ingot destocking provides support for aluminum prices, but the subsequent expectation of weakening demand and the weakening cost of aluminum both provide support for bears, with bears entering the market, futures market declining, and under the interweaving of bulls and bears, domestic aluminum prices are expected to fluctuate considerably in the short term.

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