Signals of easing trade frictions sent, short-term aluminum prices may remain in the doldrums [SMM Aluminum Morning Meeting Summary]

6.6 SMM Aluminum Morning Meeting Minutes

Futures market: Last night, the most-traded SHFE aluminum 2507 contract opened at 20,050 yuan/mt, with a high of 20,115 yuan/mt, low of 20,010 yuan/mt, and closed at 20,075 yuan/mt. Trading volume was 56,000 lots, open interest stood at 183,000 lots. LME aluminum opened at $2,477/mt, reached a high of $2,477/mt, low of $2,470/mt, and closed at $2,472.5/mt.

Macro: (1) Chinese President Xi Jinping had a phone call with US President Trump at the latter's request. Xi stated that the Chinese people always honor their words with actions, and since consensus was reached, both sides should comply. After the Geneva talks, China implemented the agreement seriously and earnestly. The US should objectively assess the progress made and withdraw negative measures against China. (Neutral★) (2) The European Central Bank cut its deposit facility rate by 25 basis points to 2%, meeting market expectations, marking the seventh consecutive interest rate cut. (Bullish★)

Fundamentals: (1) According to SMM statistics, on June 5, social inventory of primary aluminum ingots in mainstream consumption areas in China totaled 504,000 mt, down 15,000 mt from early this week and 7,000 mt WoW. After the Dragon Boat Festival holiday, domestic inventory buildup remained generally controllable, with destocking resuming mid-week, highlighting resilient consumption in early June and tight domestic ingot supply. Gongyi saw particularly notable holiday inventory accumulation due to concentrated end-month shipments, but post-holiday rail transit volumes returned to late-May levels, easing arrival pressure. SMM expects domestic ingot inventory to maintain an overall destocking trend, potentially breaking below the 500,000 mt threshold soon. (Bullish★) (2) SMM data showed social inventory of secondary aluminum alloy ingots in mainstream consumption areas at 16,367 mt on June 5, up 1,027 mt WoW. (Bearish★) (3) As of June 5, aluminum billet inventory in major consumption areas stood at 130,000 mt, up 2,300 mt from Monday. (Bearish★)

Primary aluminum market: SHFE aluminum fluctuated downward in early trading yesterday. Initial ingot destocking provided upward momentum for futures, but spot weakness amid off-season conditions led to mediocre transactions. Market priced in off-season expectations as longs cut production, driving futures lower. In east China's spot market, trading focused on sales as high premiums continued pulling back, with early deals done at -10 yuan against SMM's average price. SMM A00 aluminum was quoted at 20,250 yuan/mt yesterday, down 30 yuan/mt from the previous session, at a premium of 90 yuan against the June contract, narrowing by 10 yuan/mt. Central China transactions settled at -10 yuan against SMM's regional average price, with downstream buying concentrated at -10. SMM's A00 aluminum in central China recorded a price of 20,190 yuan/mt against the SHFE aluminum 2506 contract, down 40 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was 60 yuan/mt, widening by 10 yuan/mt from the previous trading day, with a premium of 60 yuan/mt against the 2506 contract.

 Secondary aluminum raw materials: Yesterday, spot primary aluminum prices fell slightly by 30 yuan/mt from the previous trading day. SMM's A00 aluminum spot price closed at 20,250 yuan/mt, while aluminum scrap market prices remained generally stable. With the onset of the off-season in June, downstream scrap utilisation enterprises experienced sluggish order releases, with procurement mainly driven by immediate needs. Yesterday, the centralized quotes for baled UBC aluminum scrap ranged from 15,000-15,500 yuan/mt (tax-exclusive), while shredded aluminum tense scrap quotes were concentrated at 15,500-17,000 yuan/mt (tax-exclusive). Regionally, areas such as Shanghai, Jiangsu, and Shandong closely tracked aluminum prices, with price adjustments ranging from 0-50 yuan/mt. In contrast, regions like Jiangxi, Foshan, and Guizhou lagged behind aluminum price movements, with quotes remaining unchanged from the previous day. By product, baled UBC prices remained stable compared to the previous trading day in Henan, Foshan, and Jiangxi, while Sichuan, Chongqing, Shanghai, and Zhejiang saw an overall decrease of 100 yuan/mt. For shredded aluminum tense scrap, except for Anhui, which opted for a 100 yuan/mt increase, quotes in other regions remained unchanged from the previous trading day.

Secondary aluminum alloy: Yesterday, SMM's A00 aluminum price fell by 30 yuan/mt from the previous trading day to 20,250 yuan/mt. Domestic SMM ADC12 prices decreased by 100 yuan/mt to the range of 19,900-20,100 yuan/mt. In the import market, CIF quotes for imported ADC12 remained relatively firm, mainly within 2,370-2,400 US dollars/mt, with an immediate import loss hovering around 400 yuan/mt. Local tax-exclusive quotes for ADC12 in Thailand ranged from 81-81.5 Thai baht/kg. After June, end-use consumption showed little improvement, with downstream procurement sentiment remaining low. In terms of inventory, on June 5, SMM's statistics indicated that the total social inventory of secondary aluminum alloy casting ingots in major domestic consumption areas reached 16,367 mt, an increase of 1,027 mt from the previous Thursday, maintaining an inventory buildup trend. Overall, insufficient demand will continue to constrain the upside room for prices, while cost support formed under the tight supply of raw materials may still persist.

Summary: On the macro front, the phone call between Chinese and U.S. leaders conveyed positive signals for easing trade frictions. If this can prompt the U.S. to withdraw adverse measures, it will further improve the external environment for the aluminum market. Coupled with the European Central Bank's interest rate cut, which provides a relatively direct and clear positive stimulus for aluminum prices, offering additional support. Fundamentals side, domestic operating capacity for primary aluminum remained stable, with expectations for a slight decrease in subsequent casting ingot volumes. Domestic aluminum ingot inventory temporarily maintained a destocking trend. Cost side, the impact of the Guinea ore incident on alumina prices has eased somewhat, with the real-time cost of primary aluminum slightly decreasing MoM. Demand side, the sector faces dual pressures from domestic seasonal weakness and trade uncertainties. In the short term, the operating rate of aluminum processing enterprises will be under pressure, with the off-season atmosphere intensifying. New orders in sectors such as building materials, PV, and automobiles are all showing signs of weakness. Overall, the current low inventory and the expectation of a higher proportion of liquid aluminum are providing strong support for aluminum prices. However, the overall bearish macroeconomic situation during the week has put pressure on aluminum prices at high levels, and the off-season pressure on the demand side has limited the upside room. The spot aluminum ingots in major consumption areas may soon face a situation of weak supply and demand. In the short term, aluminum prices are likely to remain in the doldrums and consolidate.

[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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