Low Inventory Support vs. Off-Season Demand: Short-Term Aluminum Prices Lack Clear Drivers [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Summary on May 28

Futures Market: Overnight, the most-traded SHFE aluminum 2507 contract opened at 20,165 yuan/mt, with a high of 20,205 yuan/mt, a low of 20,130 yuan/mt, and closed at 20,180 yuan/mt, up 140 yuan/mt or 0.70% from the previous close. LME aluminum opened at $2,465.5/mt yesterday, with a high of $2,488.5/mt, a low of $2,442.5/mt, and closed at $2,483/mt, up $17/mt or 0.69%.

Macro: (1) The EU is seeking to accelerate trade negotiations with the US, with a focus on key industries, as well as tariff and non-tariff barriers. Trump has expressed appreciation for the EU's proactive stance. (Neutral ★) (2) Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, stated that in the face of inflation risks posed by Trump's tariff policies, he favors temporarily maintaining stable interest rates until the impact of tariff hikes on inflation becomes clearer. He also warned against overlooking the impact of Trump's tariffs on global supply prices. (Bullish ★)

Fundamentals: (1) According to SMM statistics, as of May 27, aluminum ingot inventory in Guangdong was 223,000 mt; in Wuxi, it was 142,000 mt; and in Gongyi, it was 49,000 mt. The total inventory across the three locations was 414,000 mt, an increase of 1,000 mt from the previous trading day. (Bearish ★) (2) Based on recommendations from the Technical Committee on Mining Rights and the National Mining Committee, the Minister of Mines and Geology announced a decree via national television on Monday, May 26, 2025, revoking the exploration licenses of 129 mining companies operating in Guinea. (Bullish ★) (3) On May 27, LME aluminum inventory was recorded at 381,600 mt, a decrease of 3,000 mt or 0.78% from the previous day. Over the past week, LME aluminum inventory has decreased by a cumulative 9,350.00 mt or 2.39%. Over the past month, LME aluminum inventory has decreased by a cumulative 40,000 mt or 9.49%. (Bullish ★)

Primary Aluminum Market: On Tuesday morning, the center of the front-month SHFE aluminum contract fell significantly, briefly breaking below the 20,000 yuan/mt threshold. In east China, due to recent inventory drawdowns, suppliers generally showed strong reluctance to budge on prices. However, downstream buying interest weakened overall, and the market saw spot premiums of 10 yuan/mt against SMM transactions, with trading gradually becoming sluggish. Subsequently, as downstream consumption continued to weaken, spot premiums will come under pressure to fall. On Tuesday, SMM A00 aluminum was reported at 20,200 yuan/mt, down 150 yuan/mt from the previous trading day, with a premium of 90 yuan/mt against the 06 contract, unchanged from the previous trading day. In the central China market, suppliers initially held firm at premiums near 10 yuan/mt against SMM transactions. However, as shipments increased but buying interest weakened, market transactions slipped to discounts of 10 yuan/mt to parity against SMM transactions in central China. Currently, consumption in central China is showing a weakening trend, with downstream purchasing power continuing to decline and inventory destocking slowing down. Consequently, the premium in central China will come under pressure. SMM's A00 aluminum price in central China against the SHFE aluminum 2506 contract closed at 20,120 yuan/mt, down 150 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -80 yuan/mt, unchanged from the previous trading day, and the premium against the 2506 contract was 10 yuan/mt.

Secondary aluminum raw materials: On Tuesday, the spot primary aluminum price fell by 150 yuan/mt from the previous trading day. SMM's A00 aluminum spot price closed at 20,200 yuan/mt, and the aluminum scrap market price followed the aluminum price decline but remained at highs overall. With the off-season in June approaching, downstream processing enterprises are experiencing weak order releases, with purchases mainly driven by immediate needs. On Tuesday, the centralized quotes for baled UBC aluminum scrap ranged from 15,150-15,750 yuan/mt (tax-exclusive), while the centralized quotes for shredded aluminum tense scrap ranged from 15,700-17,200 yuan/mt (tax-exclusive price). Regionally, Shanghai, Jiangsu, Henan, Shandong, and other regions are closely linked to aluminum prices, with price adjustments ranging from 100-150 yuan/mt. However, the overall price adjustment range still lags behind that of primary aluminum. Regarding the price difference between A00 aluminum and aluminum scrap, in Shanghai, the price difference between A00 aluminum and mechanical casting aluminum scrap increased by 13 yuan/mt from yesterday to 1,863 yuan/mt. In Foshan, the price difference between A00 aluminum and aluminum extrusion scrap continued to rise by 150 yuan/mt from yesterday to 1,364 yuan/mt. In the short term, aluminum scrap market prices are expected to continue fluctuating at highs. The tight supply situation for aluminum tense scrap is unlikely to change, providing solid price support. Wrought aluminum alloy scrap will continue to fluctuate rangebound with primary aluminum, but the risk of a high-level correction in primary aluminum, coupled with weak demand during the off-season, will limit upside room. For downstream enterprises using aluminum scrap, the ongoing tug-of-war between cost pressure and weak terminal orders is expected to keep operating rates low. Narrowing import losses may partially alleviate supply pressure, but the transmission effect will be limited. Regional and product price differentials may further diverge. Tight supply in South China and other regions may support localized price increases, while prices in regions with weak demand will come under pressure.

Secondary aluminum alloy: On Tuesday, SMM's A00 aluminum price fell by 150 yuan/mt from the previous trading day to 20,200 yuan/mt, placing synchronous pressure on the secondary aluminum market. Domestic SMM ADC12 prices fell by 100 yuan/mt to the range of 20,200-20,400 yuan/mt, with some manufacturers temporarily stabilizing their quotes due to cost pressure. In the import market, the CIF quote for imported ADC12 continued to range from 2,380-2,400 US dollars/mt, with imported instant profit and loss remaining in a state of minor loss. The tax-exclusive quote for local ADC12 in Thailand fell to 82 Thai baht/kg. Currently, the secondary aluminum alloy price maintains a pattern where it is more likely to fall than rise. Weak orders and inventory pressure are dragging prices down, but cost support limits downside room. Subsequent focus will be on the supply of upstream raw materials, the recovery of terminal orders, and the implementation of production cuts by enterprises.

Summary: On the macro front, US consumer confidence in May was significantly better than economists' expectations, leading to a further increase in the US dollar index. Fundamentals side, short-term supply shows little change; cost side, the specific impact of the Guinea incident on local bauxite supply remains to be assessed, potentially providing sentiment-driven cost support for alumina in the near term. Demand side faces dual pressures from domestic seasonal weakness and trade uncertainties, with short-term operating rates at aluminum processing enterprises expected to remain under pressure. Subsequent focus will be on whether downstream export orders can genuinely improve and offset the anticipated weakening in domestic demand. Overall, current low inventory provides support for aluminum prices, but recent macro conditions lack unexpected positive catalysts to further drive prices, while off-season demand-side pressures limit upside room. Short-term aluminum prices are likely to fluctuate rangebound, with attention on domestic and overseas demand performance, month-end inventory trends in May, and bauxite supply disruptions.

[The provided information is for reference only. This article does not constitute direct investment research advice. Clients should exercise caution in decision-making and not use it as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]

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