Continued destocking of inventory strengthens support, and the upward trend of aluminum prices continues [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Summary on June 16

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2507 contract opened at 20,375 yuan/mt, with a high of 20,475 yuan/mt, a low of 20,355 yuan/mt, and closed at 20,465 yuan/mt, up 25 yuan/mt or 0.12% from the previous settlement. LME aluminum opened at $2,517/mt on the previous trading day, with a high of $2,527/mt, a low of $2,471/mt, and closed at $2,503/mt, down $16.5/mt or 0.65%.

Macro: (1) Data released by the University of Michigan on Friday showed that the preliminary consumer sentiment index for June was 60.5, up 16% MoM and higher than the expected 54. This marked the first increase in consumer sentiment since December last year. (Bullish ★) (2) According to preliminary statistics from the People's Bank of China, the incremental social financing scale in China from January to May was 18.63 trillion yuan, compared to 16.3429 trillion yuan from January to April. New RMB loans added from January to May were 10.68 trillion yuan, compared to 10.0597 trillion yuan from January to April. At the end of May, the balance of broad money (M2) was 325.78 trillion yuan, up 7.9% YoY. The balance of narrow money (M1) was 108.91 trillion yuan, up 2.3% YoY. The balance of currency in circulation (M0) was 13.13 trillion yuan, up 12.1% YoY. Net cash injection in the first five months was 306.4 billion yuan. (Bullish ★)

Fundamentals: (1) Last week, the downstream aluminum processing sector remained in a strong off-season atmosphere, with weekly operating rates declining by 0.5 percentage points WoW to 60.4%. (Bearish ★) (2) According to SMM statistics, as of June 16, the inventory of primary aluminum ingots in major domestic consumption areas was 458,000 mt, down 2,000 mt from the previous Thursday and 19,000 mt from the previous Monday. (Bullish ★)

Primary Aluminum Market: On Friday night, the front-month SHFE aluminum contract surged rapidly above 20,800 yuan/mt amid long position build-up. The center of gravity shifted higher again in the morning session, breaking through 20,900 yuan/mt, with the price spread between the June and July contracts widening to b430 yuan/mt. In east China, morning market quotes were centered around a premium of 20-30 yuan/mt against the SMM average price. As the price spread between the front-month and next-month contracts widened further, the market entered a state of high prices but no transactions, with widespread discounts against the SMM average price and sluggish buying interest. On Friday, SMM A00 aluminum was reported at 20,730 yuan/mt, up 80 yuan/mt from the previous trading day, with a discount of 210 yuan/mt against the June contract and a premium of 270 yuan/mt against the July contract. In the central China market, suppliers followed the price-holding strategy in east China in the morning session, with market quotes centered around a premium of 10 yuan/mt to parity against the SMM average price. However, with absolute prices remaining high, downstream buying interest was almost non-existent, and market transactions froze. Premiums subsequently collapsed, with quotes against the SMM average price falling to discounts of 20 to 30 yuan/mt. SMM recorded the price of A00 aluminum in central China against the SHFE aluminum 2506 contract at 20,640 yuan/mt, up 50 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -90 yuan/mt, down 30 yuan/mt from the previous trading day, with a discount of 300 yuan/mt against the 2506 contract.

Secondary aluminum raw materials: The spot price of primary aluminum continued to rise by 80 yuan/mt from the previous trading day last Friday. SMM A00 spot aluminum closed at 20,730 yuan/mt, with aluminum scrap market prices following suit but with varying degrees of increase. As the off-season in June progresses beyond the halfway mark, downstream scrap utilisation enterprises are experiencing sluggish order releases, with procurement primarily driven by immediate needs. Last Friday, the concentrated quotes for baled UBC aluminum scrap ranged from 15,300-15,800 yuan/mt (tax excluded), while shredded aluminum tense scrap was quoted at 15,900-17,400 yuan/mt (tax excluded). Regionally, areas such as Shanghai, Jiangsu, and Shandong closely tracked aluminum prices, with price adjustments ranging from 50-100 yuan/mt. In contrast, regions like Jiangxi, Hubei, and Henan lagged behind aluminum price movements, with quotes remaining flat on Friday after two consecutive days of increases, indicating a bottleneck in upside potential. By product, baled UBC aluminum scrap prices increased by 150 yuan/mt on Friday after a slight increase in the previous two days, narrowing the price difference between A00 aluminum and aluminum scrap. Shredded aluminum tense scrap prices remained unchanged from the previous trading day. It is expected that the aluminum scrap market will continue to fluctuate at highs. The tight supply situation 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 risk of a high-level correction in primary aluminum, coupled with weak demand during the off-season, may suppress upside potential. The operating rate of downstream secondary aluminum enterprises may remain low, with a persistent struggle between cost and order considerations. Additionally, after the listing of cast aluminum alloy futures, arbitrage activities may temporarily boost market activity, potentially increasing the price sensitivity of aluminum scrap, a core raw material. Caution is advised against short-term volatility risks.

Secondary aluminum alloy: On the futures market, the most-traded cast aluminum alloy 2511 futures contract opened at 19,455 yuan/mt last Friday, reaching a high of 19,520 yuan/mt and a low of 19,330 yuan/mt, before closing at 19,430 yuan/mt, down 30 yuan/mt or 0.15% from the previous day. Trading volume was 11,290 lots, with open interest at 9,162 lots (-1,700 lots). In the spot market, SMM A00 aluminum prices increased by 80 yuan/mt from the previous trading day to 20,730 yuan/mt last Friday, while domestic SMM ADC12 prices rose by 50 yuan/mt to the range of 19,900-20,200 yuan/mt. Market quotes last Friday were somewhat divergent, with some enterprises actively raising quotes by 100 yuan/mt driven by rising cost pressures, while others faced significant resistance to price increases due to a lack of orders. The traditional off-season characteristics are prominent, with persistent weak demand on the demand side constraining the upside potential of ADC12 prices. However, the rapid increase in raw material prices on the cost side provides support, and it is expected that ADC12 prices will remain rangebound in the short term. In the import market, the CIF quotes for imported ADC12 remained at 2,410-2,450 US dollars/mt, with imported spot prices increasing by 100 yuan/mt to around 19,200 yuan/mt, narrowing the immediate import loss to 500-600 yuan/mt. The tax-excluded quotes for local ADC12 in Thailand remained stable at 81-82 Thai baht/kg.

Summary: On the macro side, as trade tensions ease, US consumer confidence has improved for the first time in six months, and pessimism over soaring underlying inflation has also significantly diminished. In China, the rebound in the manufacturing PMI and improvement in export indicators in May have provided demand support, indicating that the domestic economy remains resilient. Fundamentals side, the operating capacity of domestic primary aluminum has remained stable, with a decrease in casting ingot volume contributing to the continued destocking of domestic aluminum ingot inventory. On the cost side, there are expectations of weakening prices for alumina and auxiliary materials, leading to a weakening of cost support for primary aluminum. On the demand side, there is dual pressure from domestic seasonal weakness and trade uncertainties, and in the short term, the operating rate of aluminum processing enterprises will be under pressure. Overall, the current low inventory and expectations of a higher proportion of liquid aluminum provide strong support for aluminum prices. However, the off-season pressure on the demand side limits the upside room. Spot aluminum in mainstream consumption areas may soon face a situation of weak supply and demand, and in the short term, aluminum prices are expected to hold up well.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make decisions cautiously and not rely on this as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]

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