Social Inventory Drawdown Exceeds Expectations, Aluminum Prices Remain High Supported by Spot Premiums [SMM Weekly Aluminum Price Review]

On the macro front, during the period, the US Federal Court blocked the implementation of Trump's tariffs, with the US Court of International Trade ruling that Trump's decision to impose comprehensive tariffs under the International Emergency Economic Powers Act, citing reasons such as trade deficits, constituted an overreach. Additionally, Fed policymakers generally believed that the uncertainties facing the economy were higher than before, and it was prudent to remain cautious about interest rate cuts, waiting for the impact of policies such as the Trump administration's tariffs to become clearer before considering action. As a result, overseas commodities were affected and pulled back. Domestically, data released by the National Bureau of Statistics (NBS) showed that in April, profits of industrial enterprises above designated size in China increased by 3% YoY, accelerating by 0.4 percentage points from March. New momentum industries, represented by the equipment manufacturing and high-tech manufacturing sectors, saw rapid profit growth. Profits in industries such as intelligent vehicle-mounted equipment manufacturing and intelligent unmanned aerial vehicle manufacturing increased by 177.4% and 167.9%, respectively. Furthermore, China's cooperation with overseas partners was steadily strengthening, and the domestic macroeconomic environment remained favorable.

On the fundamental front, the operating capacity of domestic aluminum smelters remained stable. Notably, some aluminum smelters in north China increased the proportion of liquid aluminum alloying, reducing the amount of casting ingots, which affected the arrival of goods in major consumption areas. The cost side of the aluminum industry saw an upward shift during the week. As of Thursday this week, the domestic instantaneous average complete cost of aluminum was approximately 17,200 yuan/mt, up about 258 yuan/mt from Thursday last week. The main reason was that disruptions in the ore sector stimulated alumina prices to rise, causing the cost of aluminum to increase by 1.5% from Thursday last week, compressing aluminum smelters' profits. Additionally, on the demand side, overall, some downstream sectors showed expectations of a slowdown during the off-season. Demand for aluminum in the PV sector decreased, and demand for automotive materials was expected to weaken in mid-to-late June. Demand for aluminum in the construction sector remained lukewarm. However, currently, thanks to the demand from State Grid orders, the operating rate of aluminum wire and cable remained high. In terms of inventory, as the Dragon Boat Festival holiday approached, some aluminum processing enterprises slightly stockpiled based on their orders on hand. According to SMM statistics, on May 29, the domestic aluminum social inventory was 511,000 mt, a decrease of 23,000 mt from Monday. Low inventory levels stimulated spot premiums to rise, providing support for aluminum futures and spot prices.

Overall, on the macro front, the favorable domestic environment remained unchanged, while uncertainties persisted in the overseas macroeconomic landscape. On the fundamental front, the unexpected drawdown in domestic aluminum ingot inventory provided support for aluminum prices and spot premiums. Currently, expectations of a slowdown during the off-season have emerged in some industries, but the overall decline was better than expected, and demand resilience remained. Going forward, it is necessary to closely monitor changes in inventory and demand. Next week, the most-traded SHFE aluminum contract is expected to trade around 20,000-20,500 yuan/mt, while LME aluminum is expected to trade around $2,430-2,490/mt.

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