Macro sentiment is bullish, and destocking in the fundamentals supports aluminum prices [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Summary on May 16

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2507 contract opened at 20,150 yuan/mt, with a high of 20,230 yuan/mt, a low of 20,110 yuan/mt, and closed at 20,220 yuan/mt, up 35 yuan/mt or 0.117% from the previous close. LME aluminum opened at $2,519/mt, with a high of $2,524/mt, a low of $2,481/mt, and closed at $2,499/mt, up $23.5/mt or 0.93% (a decrease).

Macro: (1) China has unveiled the top-level design for urban renewal. The General Offices of the CPC Central Committee and the State Council recently issued the "Opinions on Continuously Promoting Urban Renewal Actions," proposing eight key tasks, including renovating old urban residential communities, developing integrated community construction, advancing the renewal of old neighborhoods, old factory areas, and urban villages, and strengthening the renovation of urban infrastructure. This indicates that China is pressing the "accelerator" on vigorously implementing urban renewal. (Bullish★) (2) At a regular press conference, He Yongqian, spokesperson for the Ministry of Commerce, urged the US to immediately halt its Section 232 tariff measures. China believes that the US's initiation of Section 232 investigations into imported automobiles, steel, aluminum, and other products constitutes unilateralism and protectionism, harms the rights and interests of other countries, undermines the rules of the multilateral trading system, and does not contribute to the development of domestic industries. China calls for equal dialogue between the two sides to properly address the concerns of all parties. (Bullish★★) (3) Fed Chairman Powell stated that the Fed is considering adjusting the core elements of its monetary policy guidance framework to address significant changes in the inflation and interest rate outlook following the 2020 pandemic. He pointed out that the US may enter a period of more frequent supply shocks and greater inflation instability, posing daunting challenges to the economy and the central bank. As the economy and policies continue to evolve, long-term interest rates may rise. Powell forecasts that the US PCE will increase by approximately 2.2% YoY in April. (Bearish★)

Fundamentals: (1) According to SMM statistics, on May 15, aluminum smelters operated steadily, with operating capacity maintained at around 43.91 million mt/year. The proportion of liquid aluminum fluctuated within a narrow range, mainly due to the fact that most of the output from replacement projects in Yunnan was in the form of aluminum ingots. (Neutral) (2) On May 15, SMM statistics showed that the inventory of aluminum in the Shanghai Bonded Zone was 94,600 mt, and the inventory in the Guangdong Bonded Zone was 17,200 mt, totaling 111,800 mt, a decrease of 4,500 mt WoW. (Bullish★)

Primary Aluminum Market: Yesterday morning, the center of the SHFE aluminum futures market continued to move higher, breaking through the 20,300 yuan/mt level. In east China, due to the recent de-stocking trend and low expectations for subsequent arrivals, suppliers generally showed strong sentiment to stand firm on quotes. Additionally, major buyers purchased at a premium in the market, and the market premium remained firm, mainly at a 10-20 yuan/mt premium to SMM transactions. Yesterday, SMM A00 aluminum was quoted at 20,350 yuan/mt, up 140 yuan/mt from the previous trading day, with a premium of 60 yuan/mt against the May contract, an increase of 40 yuan/mt from the previous trading day. In the central China market, the price center of aluminum shifted upward, and suppliers' profits increased significantly. During the day, most suppliers were cashing in, leading to a price collapse in premiums and discounts, with SMM central China transactions recorded at a discount of 20-30 yuan/mt. SMM central China A00 aluminum against the SHFE 2505 contract was recorded at 20,290 yuan/mt, up 110 yuan/mt from the previous trading day, with the Henan-Shanghai price spread at -60 yuan/mt, on par with the 2505 contract.

Secondary aluminum raw materials: Yesterday, spot primary aluminum rose by 140 yuan/mt from the previous trading day, with SMM A00 spot closing at 20,350 yuan/mt. The overall price of the aluminum scrap market was adjusted upward. Entering mid-to-late May, the transition between the off-season and peak season has led to weak order releases from downstream processing enterprises, with procurement mainly driven by rigid demand. Yesterday, baled UBC aluminum scrap was quoted at 15,350-15,950 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 15,850-17,350 yuan/mt (excluding tax). By region, Jiangxi and Hunan chose to hold steady, with overall prices unchanged, lagging behind primary aluminum adjustments. Other regions such as Shanghai, Jiangsu, and Henan adjusted prices by 100-150 yuan/mt, closely linked to aluminum prices. In terms of the price difference between A00 aluminum and aluminum scrap, the price difference for mechanical casting aluminum scrap in Shanghai widened by 4 yuan/mt to 1,850 yuan/mt compared to yesterday; the price difference for aluminum extrusion scrap in Foshan remained unchanged at 1,539 yuan/mt. In the short term, the aluminum scrap market may continue to fluctuate at highs, with the tight supply of aluminum tense scrap products remaining unchanged, providing strong price support. Wrought aluminum alloy scrap products will still be dominated by primary aluminum fluctuations, with narrow adjustments expected. Overall, during the transition period between the off-season and peak season, under the weak supply and demand situation, product differentiation and regional price spreads may become more pronounced. Subsequent attention should be paid to macro risks such as the US Fed's policy shift and geopolitical conflicts, which may trigger sharp fluctuations in primary aluminum, or domestic secondary aluminum enterprises' concentrated production cuts putting pressure on aluminum scrap prices.

Secondary aluminum alloy: Yesterday, SMM A00 aluminum price was adjusted up by 140 yuan/mt to 20,350 yuan/mt from the previous trading day, while domestic SMM ADC12 prices remained in the range of 20,300-20,500 yuan/mt. In the import market, overseas ADC12 quotations were mostly in the range of $2,400-2,410/mt, with actual transaction prices in some regions falling below $2,400/mt, and the immediate loss of imported ADC12 narrowed to around 200 yuan/mt. Aluminum prices have maintained a four-day rally this week, but the demand boost has been weak, and the upward momentum of secondary aluminum prices remains insufficient. Currently, the easing of trade has not yet shown a significant effect on actual consumption. However, due to tight raw material circulation and rapid price increases, cost support continues to strengthen. It is expected that ADC12 prices will maintain a narrow fluctuating trend in the short term.

Summary: Favorable macro conditions provide a floor for aluminum prices, and low inventory further strengthens price resilience. However, the pressure of the off-season in the demand side limits the upside room. If the US and China make breakthroughs in the 232 steel and aluminum tariff negotiations, the global aluminum trade flow will be reshaped, and the supply pressure in markets outside the US is expected to ease, further boosting market sentiment and being bullish for aluminum prices.

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

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