Macro Support Coexists with Tug-of-War Between Sellers and Buyers, Short-Term Resilience and Pressure Intertwined for Aluminum Prices [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Summary on May 19

Futures Market: On Friday evening, the most-traded SHFE aluminum 2507 contract opened at 20,125 yuan/mt, with a high of 20,300 yuan/mt, a low of 20,100 yuan/mt, and closed at 20,190 yuan/mt, up 60 yuan/mt or 0.30% from the previous settlement. On the same day, LME aluminum opened at $2,500/mt, with a high of $2,504/mt, a low of $2,461.5/mt, and closed at $2,485.5/mt, down $14.5/mt or 0.58%.

Macro: (1) Trump: New tariffs will be imposed on many countries in the next two to three weeks. (Bearish ★) (2) The US one-year inflation expectations for May hit the highest level since 1981; consumer confidence slightly dipped to the second-lowest on record but ended a four-month streak of sharp declines. (Bearish ★) (3) The Russia-Ukraine negotiations lasted only two hours. Russia demanded Ukraine's withdrawal of troops as a condition for a ceasefire, which Ukraine deemed "unacceptable" and called the talks "fruitless," proposing a meeting between the presidents of Russia and Ukraine. The two sides only agreed to exchange 1,000 prisoners of war and to continue negotiations after submitting ceasefire terms. (Neutral)

Fundamentals: (1) Last week, the operating rate of leading enterprises in China's downstream aluminum processing sector fell 0.3 percentage points WoW to 61.6%, mainly due to weak demand in the primary alloy and extrusion sectors, with weak orders. The operating rate is expected to decline slightly again this week. (Bearish ★) (2) On May 14, the Guinean government ordered the revocation of industrial and semi-industrial mining licenses for over 40 mining companies, including "Axis Minérales, substance, Bauxite, Nature de l’acte d’octroi, D-2018-267-PRG SGG, Date d’octroi et de fin, 2-11-2018-1er-11-2033". It is understood that this mining right involves some projects currently mining and exporting bauxite. Recently, operating projects in this mining area received notices of suspension, involving an annual bauxite production capacity exceeding 10 million mt. Relevant companies may negotiate with the government. The specific impact remains to be evaluated, and SMM will continue to follow up. This news has sparked market concerns about the supply of bauxite raw materials, leading to a sharp rise in alumina futures during the night session. (Bullish ★) (3) According to SMM statistics, as of May 19, China's domestic social inventory of primary aluminum stood at 585,000 mt, an increase of 4,000 mt from last Thursday. (Bearish ★)

Primary Aluminum Market: On Friday morning, the center of SHFE aluminum prices fell to the 20,200 yuan/mt level and oscillated. In east China, due to the recent de-stocking trend, suppliers generally showed strong willingness to hold prices firm. Coupled with large traders purchasing at a premium to the market, the market premium continued to rise, mainly at a premium of 10-20 yuan/mt to SMM transactions. On Friday, SMM A00 aluminum was reported at 20,270 yuan/mt, down 80 yuan/mt from the previous trading day, with a premium of 70 yuan/mt to the 06 contract, up 20 yuan/mt from the previous trading day. In the central China market, the center of aluminum prices shifted upward, and suppliers saw significant profit growth. To realize monthly contract profits, most suppliers continued to face a price collapse in spot premiums and discounts. SMM's central China transactions were at a discount of 10-20 yuan/mt. SMM's central China A00 aluminum was recorded at 20,200 yuan/mt against the SHFE aluminum 2506 contract, down 90 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -70 yuan/mt, and it was on par with the 2506 contract.

Secondary aluminum raw materials: Last Friday, the overall aluminum scrap market saw price declines. Entering the mid-to-late May, as the off-season and peak season alternated, downstream processing enterprises struggled to release orders, with procurement mainly driven by immediate needs. The centralized quotes for baled UBC aluminum scrap ranged from 15,300-15,900 yuan/mt (tax not included), while those for shredded aluminum tense scrap ranged from 15,750-17,250 yuan/mt (tax not included). In the short term, the aluminum scrap market is expected to continue fluctuating at highs. The supply shortage of aluminum tense scrap products is unlikely to change, providing strong price support. Wrought aluminum alloy scrap products will still be dominated by fluctuations in primary aluminum prices, with narrow adjustments expected.

Secondary aluminum alloy: Last Friday, SMM's A00 aluminum price fell by 80 yuan/mt from the previous trading day to 20,270 yuan/mt. Domestic SMM ADC12 prices remained in the range of 20,300-20,500 yuan/mt. In the import market, overseas ADC12 quotes were mostly in the range of $2,400-2,410/mt, with actual transaction prices in some regions falling below $2,400/mt. Last Friday, aluminum prices turned slightly lower, and the secondary aluminum market mostly held steady and observed. Some enterprises, constrained by weak demand, actively followed the price decline by 100 yuan/mt. It is expected that the ADC12 price will maintain a fluctuating trend within a narrow range in the short term.

Summary: Recently, the aluminum market has received support from improvements in the domestic and overseas macro environment, but bullish and bearish factors are intertwined. On the supply side, domestic aluminum capacity is approaching its ceiling, and insufficient recovery of hydropower in Yunnan has exacerbated regional supply tightness, limiting the increase in aluminum ingot production. On the cost side, a sudden revocation of mining licenses in Guinea last Friday night led to production halts in some mining areas, sparking market concerns about bauxite raw material supply and potentially driving up alumina costs, though the specific impact remains to be assessed. On the demand side, it faces dual pressures from domestic seasonal weakness and trade uncertainties, making significant growth unlikely in the short term. Aluminum ingot inventory has fallen to a low level for the same period, and tight spot liquidity is supporting aluminum prices. Overall, positive macro factors provide a floor support for aluminum prices, and low inventory further strengthens price resilience. However, off-season pressure on the demand side limits upside room. In the short term, attention should be paid to domestic and overseas demand performance as well as bauxite supply conditions.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. 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.]

》Click to view SMM's aluminum industry chain database

》Subscribe to view SMM's historical spot metal prices