Social inventory of aluminum increased slightly during the week, with expectations of inventory buildup rising. Short-term focus on the game between demand and arrivals [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Summary on May 20

Futures Market: Overnight, the most-traded SHFE aluminum 2507 contract opened at 20,050 yuan/mt, with a high of 20,100 yuan/mt, a low of 20,025 yuan/mt, and closed at 20,040 yuan/mt, down 70 yuan/mt or 0.35% from the previous close. On Monday, LME aluminum opened at $2,438/mt, with a high of $2,439/mt, a low of $2,436/mt, and closed at $2,437.5/mt, up $1.5/mt or 0.06%.

Macro: (1) Atlanta Fed President Bostic recently stated that he expects the US economy to slow down this year but not fall into a recession, and reiterated that he expects the US Fed to cut interest rates only once this year. (Bearish ★) (2) Putin said Russia is ready to cooperate with Ukraine on a memorandum for peace talks. Trump stated that Russia and Ukraine will immediately start negotiations to achieve a ceasefire. Zelenskyy expressed willingness to sign a memorandum with Russia for a ceasefire, in line with Putin's statement. The Kremlin indicated that the leaders of Russia and the US intend to arrange a face-to-face meeting in the future, without setting a timetable for a ceasefire between Russia and Ukraine. (Neutral) (3) The National Bureau of Statistics released data on the national economic operation in April: The value-added of industrial enterprises above designated size increased by 6.1% YoY, the surveyed urban unemployment rate nationwide was 5.1%, the total retail sales of consumer goods increased by 5.1% YoY, and among 70 large and medium-sized cities, the selling prices of commercial residential buildings in cities of all tiers remained flat or declined slightly MoM, with YoY declines continuing to narrow. Overall, in April, the impact of external shocks increased, but macro policies worked in coordination, major indicators grew steadily and rapidly, and the national economy continued to maintain a positive and improving trend. (Bullish ★)

Fundamentals: (1) According to SMM statistics, as of May 19, the aluminum billet inventory in major domestic consumption areas was 131,600 mt, down 6,600 mt from the previous Thursday. With fewer arrivals over the weekend, domestic aluminum billet inventory continued to decline. On Monday, the aluminum billet market maintained a stable trend, with suppliers refusing to budge on prices and mainly releasing goods slowly. The supply of low-priced goods was relatively limited, and downstream enterprises moderately restocked based on quality, with overall transactions being moderate. (Bullish ★) (2) According to SMM statistics, during the period from May 12 to May 18, the total outflows from warehouses of aluminum ingots in China were 116,900 mt, down 2,300 mt from the previous period. (Bearish ★) (3) According to China Customs, in April 2025, China exported 260,000 mt of alumina, up 101.6% YoY. From January to April 2025, China's cumulative alumina exports reached 960,000 mt, up 74.7% YoY. (Neutral)

Primary Aluminum Market: On Monday, the SHFE aluminum futures market fluctuated downward in the morning session, with the opening price center pulling back significantly. The closing price in the first trading session was 20,155 yuan/mt. In terms of spot market performance, with aluminum prices returning to above 20,000 yuan/mt, transactions in the east China and Gongyi markets weakened, and there was a slight inventory buildup in the fundamentals. Specifically, in east China, trading sentiment turned weak today, with traders dominating the transactions. Some aluminum smelters were active in both inbound and outbound shipments. Later in the market, transactions ranged from -10 yuan/mt. End-users reported a slowdown in orders, with raw materials being purchased as needed. Yesterday, SMM A00 aluminum was quoted at 20,230 yuan/mt, down 40 yuan/mt from the previous trading day, with a premium of 70 yuan/mt against the 06 contract, unchanged from the previous trading day. In the central China market, there was a relatively high volume of outbound shipments, but transactions were difficult to close. Transactions in the central China market were concentrated on outbound shipments with premiums ranging from -20 to -10 yuan/mt against the SMM central China benchmark, with transactions closing at -20 yuan/mt. In the short term, with high aluminum prices and an increase in inventory arrivals, market transactions have slowed down, and there is insufficient upward momentum for premiums. It is expected that premiums and discounts will remain in the doldrums.

Secondary aluminum raw materials: On Monday, the overall price changes in the aluminum scrap market were relatively small. As mid-to-late May approached, the transition between the off-season and peak season occurred, with downstream processing enterprises experiencing sluggish order releases and purchasing mainly based on immediate needs. Yesterday, the centralized quotes for baled UBC aluminum scrap ranged from 15,250 to 15,850 yuan/mt (tax excluded), while the centralized quotes for shredded aluminum tense scrap ranged from 15,750 to 17,250 yuan/mt (tax excluded). In the short term, the aluminum scrap market may continue to fluctuate at highs. The supply shortage pattern for aluminum tense scrap products is difficult to change, with strong price support. Wrought aluminum alloy scrap products will still be dominated by fluctuations in primary aluminum, and narrow adjustments are expected.

Secondary aluminum alloy: Yesterday, aluminum prices continued to decline slightly from Friday last week, and the secondary aluminum alloy market maintained a stable operation pattern. Domestically, SMM ADC12 prices remained within the range of 20,300 to 20,500 yuan/mt. In the import market, overseas ADC12 quotes were mostly between $2,400 and $2,410/mt, with actual transaction prices in some regions falling below $2,400/mt. The immediate loss for imported ADC12 remained around 300 yuan/mt. Under the dual influence of cost support and the off-season in demand, ADC12 prices are in a dilemma, with short-term fluctuations expected to remain rangebound.

Summary: 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, the sudden revocation of mining licenses in Guinea and the issuance of production halt notices for the affected mining areas late Friday night have sparked market concerns about the supply of bauxite raw materials, potentially driving up alumina costs. However, the specific impact remains to be evaluated. On the demand side, it faces dual pressures from domestic seasonal weakness and trade uncertainties, making significant growth in the short term unlikely. On Monday, SMM statistics showed that domestic aluminum ingot inventory was 585,000 mt, a slight increase of 4,000 mt from last Thursday. There was a noticeable increase in arrivals over the weekend, but whether this will lead to inventory buildup depends on whether the restocking demand for export orders from downstream enterprises can match the increase in arrivals. Overall, favorable macro factors and low inventory levels provide support for aluminum prices, but the off-season pressure on the demand side limits upside room. In the short term, attention should be paid to the performance of domestic and overseas demand, as well as the supply situation of bauxite.

[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 replace their independent judgment with this information. Any decisions made by clients are not related to SMM.]

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