Macro Disturbances and Supply and Demand Tug-of-War: Aluminum Prices Unlikely to Break Out of Short-Term Volatility Puzzle [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Summary on May 29

Futures Market: Overnight, the most-traded SHFE aluminum 2507 contract opened at 20,115 yuan/mt, with a high of 20,135 yuan/mt, a low of 20,045 yuan/mt, and closed at 20,070 yuan/mt, down 25 yuan/mt or 0.12% from the previous close. LME aluminum opened at $2,481/mt yesterday, with a high of $2,495.5/mt, a low of $2,460/mt, and closed at $2,465/mt, down $18/mt or 0.72%.

Macro: (1) The US Federal Court blocked the implementation of the tariff policy announced by US President Trump on "Liberation Day" (April 2) on local time May 28, ruling that Trump's move to impose across-the-board tariffs on countries that export more to the US than they import was ultra vires. (Bearish ★) (2) On May 28, Goldman Sachs stated in its latest research report that tariffs would drive the US core PCE inflation rate to rebound to 3.6% later this year, but this inflationary shock is expected to be a "one-off" price increase rather than sustained inflationary pressure. (Bullish ★)

Fundamentals: (1) According to SMM statistics, aluminum ingot inventory in Guangdong was 218,000 mt; in Wuxi, it was 136,000 mt; and in Gongyi, it was 51,500 mt. The total inventory across the three locations was 405,500 mt, down 8,500 mt from the previous trading day. (Bullish ★) (2) According to SMM statistics, regarding domestic aluminum billet inventory in two locations, aluminum billet inventory in Guangdong was 62,300 mt, and in Wuxi, it was 18,100 mt, totaling 80,400 mt, down 1,100 mt WoW. (Bullish ★)

Primary Aluminum Market: In the morning session on Wednesday, the center of aluminum prices shifted slightly higher, basically fluctuating rangebound around 20,200 yuan/mt. In east China, due to the recent inventory drawdown, suppliers generally showed strong reluctance to budge on prices. Currently, there are fewer in-transit cargoes in east China, coupled with a small amount of stockpiling by downstream buyers ahead of the Dragon Boat Festival, the market premium rose again, with transactions at parity to 10 yuan/mt against the SMM average price. On Wednesday, SMM A00 aluminum was reported at 20,350 yuan/mt, up 150 yuan/mt from the previous trading day, with a premium of 100 yuan/mt against the 06 contract, up 10 yuan/mt from the previous trading day. In the central China market, suppliers held firm on prices near a 10 yuan/mt premium in the morning session. Consumption in central China showed a weakening trend, with downstream purchasing power continuing to decline. However, in-transit cargoes in the market also decreased WoW, presenting a situation of weak supply and demand. Coupled with a small amount of stockpiling by downstream buyers ahead of the Dragon Boat Festival, the market basically transacted at parity against the SMM central China average price. SMM central China A00 aluminum was recorded at 20,280 yuan/mt against the SHFE aluminum 2506 contract, up 160 yuan/mt from the previous trading day. The price spread between central China and east China was -70 yuan/mt, up 10 yuan/mt from the previous trading day, with a premium of 30 yuan/mt against the 2506 contract.

Secondary Aluminum Raw Materials: On Wednesday, spot primary aluminum prices fell by 150 yuan/mt compared to the previous trading day, with SMM A00 aluminum closing at 20,350 yuan/mt. The aluminum scrap market showed varied price adjustments, but overall prices remained at high levels. As the off-season in June approaches, downstream processing enterprises are experiencing weak order releases, with procurement mainly driven by immediate needs. Today, the quoted prices for baled UBC aluminum scrap are concentrated in the range of 15,250-15,850 yuan/mt (tax-exclusive), while shredded aluminum tense scrap is quoted at 15,700-17,200 yuan/mt (tax-exclusive). Regionally, areas such as Shanghai, Jiangsu, Henan, and Shandong are closely linked to aluminum prices, with price adjustments ranging from 100-150 yuan/mt, though the overall adjustment still lags behind primary aluminum. In contrast, regions like Jiangxi, Hunan, Hubei, and Anhui have chosen to maintain stable prices, with quotes unchanged from yesterday. In the short term, aluminum scrap market prices are expected to continue fluctuating at highs. The tight supply of 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 upside room is limited due to the accumulated risk of high primary aluminum prices falling and weak demand during the off-season. For downstream enterprises using aluminum scrap, the ongoing struggle between cost pressure and weak end-user orders is likely 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 widen. Tight supply in South China and other regions may support localized price increases, while prices in regions with weak demand will face downward pressure.

Secondary Aluminum Alloy: On Wednesday, SMM A00 aluminum prices rose by 150 yuan/mt from the previous trading day to 20,350 yuan/mt. The secondary aluminum market struggled to catch up, with domestic SMM ADC12 prices holding steady in the range of 20,200-20,400 yuan/mt. In the import market, the CIF quotes for imported ADC12 continued to range from 2,380-2,400 US dollars/mt, with imports maintaining a slight loss. In Thailand, local ADC12 prices (tax-exclusive) are concentrated at 82 Thai baht/kg. Currently, secondary aluminum alloy prices are more likely to fall than rise, dragged down by weak orders and inventory pressure, but cost support limits the downside room. Going forward, close attention should be paid to the supply of upstream raw materials, the recovery of end-user orders, and the implementation of production cuts by enterprises.

Summary: On the macro front, the minutes from the US Fed meeting indicated that participants agreed that increased uncertainty about the economic outlook made a cautious monetary policy appropriate. On the fundamentals side, the overall supply side of the aluminum market remained stable in the short term, with no significant changes observed. On the cost side, price fluctuations triggered by earlier disruptions to bauxite supply in Guinea have gradually eased, and the increase in domestic spot alumina prices has significantly slowed down. As alumina enterprises' profit margins improve, some are expected to initiate production resumption plans, which may have some impact on subsequent market supply. On the demand side, domestic seasonal weakness and trade uncertainties are exerting dual pressure. In the short term, the operating rates of aluminum processing enterprises will continue to face downward pressure. It remains to be seen whether downstream export orders can truly improve and offset the expected weakening of domestic demand. Overall, although aluminum inventory is at a relatively low level, providing some support for aluminum prices, the recent lack of unexpected positive factors from a macro perspective makes it difficult to drive aluminum prices higher. Meanwhile, the off-season pressure on the demand side also limits the upside room for aluminum prices to a certain extent. Therefore, it is expected that aluminum prices will maintain a fluctuating rangebound consolidation trend in the short term.

[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 rely on this to replace their own independent judgment. Any decisions made by clients are not related to SMM.]

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