Macro and fundamentals intertwined, aluminum prices continue to fluctuate rangebound in the short term [SMM Morning Aluminum Meeting Summary]

5.26 SMM Aluminum Morning Meeting Summary

Futures Market: On last Friday's night session, the most-traded SHFE aluminum 2507 contract opened at 20,125 yuan/mt, with a high of 20,175 yuan/mt, a low of 20,080 yuan/mt, and closed at 20,175 yuan/mt, up 20 yuan/mt or 0.10% from the previous close. LME aluminum opened at $2,460.5/mt on the previous trading day, with a high of $2,473/mt, a low of $2,440/mt, and closed at $2,466/mt, up $9.5/mt or 0.39%.

Macro: (1) The US manufacturing PMI rose to a three-month high of 52.3 in May, while the flash services PMI stood at 52.3, hitting a two-month peak. (Bullish ★) (2) On the 25th local time, US President Trump stated that the EU had requested an extension of the tariff negotiation deadline to July 9th, and he had agreed to this request. On the 23rd, Trump posted on social media suggesting a 50% tariff on goods from the EU starting from June 1st. (Bullish ★)

Fundamentals: (1) According to SMM's domestic aluminum ingot inventory data, the three-region inventory of domestic primary aluminum ingots stood at 424,000 mt on May 23rd, a destocking of 8,000 mt from the previous day. (Bullish ★) (2) Amid news of supply-side disruptions in the bauxite market, bauxite prices have risen, and the cost support for alumina is expected to strengthen. Coupled with the fact that the short-term fundamentals have not shifted to a surplus pattern, there is still upward momentum in prices. However, with supply recovery, alumina price increases may encounter resistance, and alumina prices are expected to hold up well in the short term. (Bullish ★)

Primary Aluminum Market: On Friday, the SHFE aluminum market traded in a volatile manner during the morning session, with the price center moving higher. In the spot market, east China's spot aluminum performed strongly. Despite high aluminum prices, downstream purchase willingness decreased, while transactions among traders increased. Specifically, trading sentiment in east China was good on Friday, with limited arrivals providing strong price support. Downstream purchase willingness weakened, but traders showed strong reluctance to budge on prices due to low inventory. Additionally, due to scarce supply, suppliers were cautious in selling, and market transactions were mainly priced at a premium of 10 yuan/mt against SMM. On Friday, SMM A00 aluminum was reported at 20,370 yuan/mt, up 10 yuan/mt from the previous trading day, with a premium of 80 yuan/mt against the 06 contract, unchanged from the previous trading day. In the central China market, transactions on Friday were concentrated at prices against the SMM central China average. The morning quote fluctuated significantly. SMM central China A00 aluminum was recorded at 20,300 yuan/mt against the most-traded SHFE aluminum 2506 contract, up 10 yuan/mt from the previous trading day. The price spread between central China and SHFE aluminum was 70 yuan/mt, unchanged from the previous trading day, with a premium of 10 yuan/mt against the 2506 contract.

Secondary Aluminum Raw Materials: On Friday, the spot primary aluminum price increased by 10 yuan/mt from the previous trading day, with SMM A00 aluminum closing at 20,370 yuan/mt. Aluminum scrap market prices fluctuated at highs. Entering the late May, as the off-season and peak season alternate, downstream processing enterprises have seen sluggish order releases, with purchases mainly driven by immediate needs. Last Friday, baled UBC aluminum scrap prices were concentrated at 15,300-15,900 yuan/mt (tax excluded), while shredded aluminum tense scrap prices ranged between 15,800-17,300 yuan/mt (tax excluded). Regionally, prices remained stable in Hubei, Guizhou, Anhui, and other areas without adjustments, while regions like Shanghai, Jiangsu, Henan, and Shandong closely followed aluminum price movements with adjustments of 0-50 yuan/mt. In Jiangxi, after an overall price increase on Tuesday, scrap aluminum prices held steady on Friday despite primary aluminum fluctuations. Short-term, aluminum scrap prices continue to fluctuate at highs, with tight supply of tense scrap sustaining price support. Wrought aluminum alloy scrap still moves rangebound with primary aluminum, but upside room is limited due to accumulated risks of high-level primary aluminum corrections and weak off-season demand. Downstream scrap-consuming enterprises face ongoing cost pressure and soft end-user orders, likely maintaining low operating rates. Narrowed import losses may partially ease supply pressure, though the effect remains limited. Regional and product price spreads may further diverge, with tight supply in South China potentially supporting local increases, while weaker demand areas face downward pressure.

Secondary aluminum alloy: Last Friday, SMM A00 aluminum rose slightly by 10 yuan/mt to 20,370 yuan/mt from the previous trading day, while domestic SMM ADC12 prices held steady at 20,300-20,500 yuan/mt. In the import market, ADC12 CIF offers mostly stood at $2,380-2,400/mt, with immediate losses narrowing to around 200 yuan/mt. Thailand’s local ADC12 tax-excluded quotes were approximately 82.5 baht/kg. Short-term, secondary aluminum alloy prices are expected to fluctuate rangebound, constrained by weak demand-side momentum, though cost-side support persists. Subsequent focus should be on raw material supply, order volume changes, and secondary aluminum production cuts.

Summary: Macro-wise, following the China-US joint announcement, market optimism surged as the US made progress in tariff negotiations with major economies, marginally strengthening expectations of trade war de-escalation and improving macro sentiment. Fundamentals side, short-term supply-side changes remain relatively small. Cost side, the specific impact of Guinea’s incident on bauxite supply awaits assessment, though it may temporarily bolster alumina cost support sentiment-wise. Demand side faces dual pressures of domestic seasonal weakness and trade uncertainty, with short-term aluminum processing enterprises’ operating rates continuing to decline under pressure. Subsequent attention should be on whether downstream export orders genuinely improve to offset domestic demand softening. Overall, current low inventory supports aluminum prices, but the absence of macro catalysts to further drive prices and off-season demand pressure limit upside room. Spot aluminum ingot in mainstream consumption areas will likely face weak supply and demand, with short-term prices fluctuating rangebound. Monitor domestic and overseas demand performance, month-end inventory trends, and bauxite supply disruptions.

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