Softening US economy coupled with tense situation in the Middle East, low domestic inventory supports aluminum prices to hold up well [SMM Aluminum Morning Meeting Summary]

6.18 SMM Aluminum Morning Meeting Minutes

Futures Market: During the previous night session, the most-traded SHFE aluminum 2507 contract opened at 20,520 yuan/mt, reached a high of 20,620 yuan/mt, hit a low of 20,500 yuan/mt, and closed at 20,585 yuan/mt, up 125 yuan/mt (0.61%) from the previous close. LME aluminum opened at $2,515.5/mt the previous day, peaked at $2,554/mt, bottomed at $2,504/mt, and settled at $2,545/mt, gaining $28/mt (1.11%).

Macro: (1) The US Fed will hold a meeting on June 25 to discuss potential revisions to the Supplementary Leverage Ratio (SLR) rules, which may relax restrictions on banks trading US Treasury bonds. (Bullish★) (2) US retail sales in May recorded the largest decline since early this year, with restaurant and bar consumption posting its biggest drop in over two years. Industrial output also fell during the same period. (Bearish★)

Fundamentals: (1) According to SMM's domestic aluminum ingot inventory data from three regions, primary aluminum ingot stocks stood at 331,500 mt on June 17, down 0.2 mt from the previous day. (Bullish★) (2) On June 17, LME aluminum inventories registered 349,100 mt, decreasing by 2,100 mt (0.60%) from the prior day. Over the past week, LME aluminum stocks fell by 10,800 mt (3.00%), while the monthly reduction totaled 46,400 mt (11.72%). (Bullish★)

Primary Aluminum Market: On Tuesday, SHFE aluminum futures fluctuated in early trading. The price spread between futures contracts maintained a high premium of over 200 yuan/mt after contract rollover. However, amid the traditional off-season, downstream production cuts weakened purchasing capacity. Both east China and central China markets generally traded at discounts, with sluggish market activity. In east China, spot prices initially traded at discounts of 20-30 yuan/mt against SMM prices, mainly due to weak off-season demand and fear of high prices. Later, as spot premiums against futures narrowed, transactions gradually shifted to SMM average prices. On Tuesday, SMM A00 aluminum was quoted at 20,620 yuan/mt, down 10 yuan/mt from the previous day, with a premium of 210 yuan/mt against the 2507 contract, up 220 yuan/mt. In central China, suppliers offered large discounts in early trading, with spot prices at discounts of 30-20 yuan/mt against SMM central China prices. News of production cuts at some downstream plants emerged, coupled with strong buyer aversion to high prices, resulting in extremely sluggish transactions. Suppliers further lowered discounts to facilitate deals. On Tuesday, SMM central China A00 aluminum was recorded at 20,490 yuan/mt against the SHFE aluminum 2507 contract, down 30 yuan/mt from the prior day. The Henan-Shanghai price spread widened to 130 yuan/mt, expanding by 20 yuan/mt, with an 80 yuan/mt premium against the 2507 contract.

Secondary Aluminum Raw Materials: On Tuesday, spot primary aluminum prices continued to decline by 10 yuan/mt from the previous day, with SMM A00 aluminum closing at 20,620 yuan/mt. Aluminum scrap prices remained flat overall. As the off-season progresses halfway through June, downstream scrap utilisation enterprises are experiencing weak order releases, with procurement primarily driven by immediate needs. On Tuesday, the centralized quotes for baled UBC aluminum scrap ranged from 15,350 to 15,850 yuan/mt (tax not included), while shredded aluminum tense scrap quotes were concentrated between 15,900 and 17,400 yuan/mt (tax not included). Regarding the price difference between A00 aluminum and aluminum scrap, the spread between A00 aluminum and mechanical casting aluminum scrap in Shanghai widened by 25 yuan/mt from last Thursday to 1,850 yuan/mt, while the spread between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan narrowed by 150 yuan/mt from last Thursday to 1,505 yuan/mt. It is expected that the aluminum scrap market will continue to fluctuate at highs. The tight supply situation for aluminum tense scrap is unlikely to change, with 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, combined with weak demand during the off-season, may suppress upside room. The operating rate of downstream secondary aluminum enterprises may remain low, with a difficult balance between costs and orders. Additionally, after the listing of cast aluminum alloy futures, arbitrage activities may temporarily boost market activity, and the price sensitivity of aluminum scrap, as a core raw material, may increase, necessitating vigilance against short-term volatility risks.

Secondary Aluminum Alloy: On the futures market, on Tuesday, the most-traded cast aluminum alloy futures contract 2511 opened at 19,500 yuan/mt, reached a high of 19,630 yuan/mt, a low of 19,440 yuan/mt, and closed at 19,565 yuan/mt, up 95 yuan/mt or 0.49% from the previous close, with a trading volume of 9,114 lots and an open interest of 8,964 lots (+291 lots). In the spot market, on Tuesday, the SMM A00 aluminum price fell slightly by 10 yuan/mt from the previous trading day to 20,620 yuan/mt, while the domestic SMM ADC12 price remained stable in the range of 19,900-20,200 yuan/mt. Aluminum prices continued to decline on Tuesday, following the previous day's trend, with the raw material side of secondary aluminum remaining firm, providing support for ADC12 prices, and market quotes generally holding steady. Currently in the traditional off-season, new order growth is sluggish, and persistent weakness on the demand side is suppressing the upside room for ADC12 prices. However, cost support remains, and it is expected that ADC12 prices will maintain narrow adjustments in the short term. In the import market, the CIF quotes for imported ADC12 slightly held steady at 2,420-2,450 US dollars/mt, the imported spot price remained flat at around 19,200 yuan/mt, and the immediate import loss stabilized in the range of 500-600 yuan/mt. The domestic ADC12 price in Thailand, excluding tax, temporarily held steady at 82 Thai baht/kg.

Summary: On the macro side, softening US economic data and geopolitical tensions in the Middle East have made the market nervous. US retail sales in May were weaker than expected, but consumer spending remained supported by robust wage growth. Fundamentals side, the operating capacity of domestic primary aluminum remained stable, with a reduction in casting ingot volume prompting domestic aluminum ingot inventory to maintain a destocking state. On the cost side, there are expectations of weakening prices for alumina and auxiliary materials, leading to reduced cost support for primary aluminum. On the demand side, there is dual pressure from domestic seasonal weakness and trade uncertainties, and the operating rate of aluminum processing enterprises will be under pressure to decline in the short term. Overall, the current low inventory and the expectation of a higher proportion of liquid aluminum are providing strong support for aluminum prices. However, the pressure of the off-season in the demand side limits 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 expected to hold up well.

[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.]