Low inventory support vs. off-season demand, aluminum prices fluctuate at highs amid US Fed's stability maintenance [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Notes on June 19

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2507 contract opened at 20,650 yuan/mt, with a high of 20,650 yuan/mt, a low of 20,590 yuan/mt, and closed at 20,645 yuan/mt, down 35 yuan/mt or 0.17% from the previous close. On the previous trading day, LME aluminum opened at $2,549/mt, with a high of $2,560.5/mt, a low of $2,537.5/mt, and closed at $2,546.5/mt, up $1.5/mt or 0.06%.

Macro: (1) The US Fed maintained the benchmark interest rate unchanged at 4.25%-4.50%, the fourth time it has kept rates steady since January. The Fed's dot plot indicates that it expects to cut interest rates twice in 2025, and 25 basis points each in 2026 and 2027. (Bearish ★) (2) The Bank of England is set to announce its interest rate decision on Thursday, with expectations that it will keep rates unchanged at 4.25%, while hinting at a strategy of cutting rates once every other meeting. (Bearish ★)

Fundamentals: (1) According to SMM statistics, on June 18, aluminum ingot inventory in Guangdong was 160,500 mt; in Wuxi, it was 114,000 mt; and in Gongyi, it was 51,000 mt, totaling 325,500 mt across the three locations, a decrease of 6,000 mt from the previous trading day. On June 18, regarding the inventory of aluminum billet in two domestic locations, Guangdong had 56,800 mt and Wuxi had 19,800 mt, totaling 76,600 mt, a MoM decrease of 1,400 mt. (Bullish ★) (2) According to SMM, small and medium-sized aluminum wire and cable enterprises in Hebei reported being in a semi-shutdown state, with the industry's operating rate weakening and market consumption momentum insufficient. This weak performance is mainly attributed to two factors: First, the State Grid has just gone through a concentrated delivery cycle, and although enterprises have sufficient orders on hand, new orders have not yet been matched in a timely manner; Second, the current spot aluminum prices are at a high level, while the bid prices of enterprises in the early stage are significantly lower than the current prices, severely compressing profit margins. As a result, enterprises have low willingness to purchase raw materials and lack the motivation to produce finished product inventories. (Bearish ★)

Primary Aluminum Market: On Wednesday, the SHFE aluminum futures market fluctuated upward in the morning session, with a significant upward trend. However, the actual transaction premiums in the spot market narrowed. Due to the arrival of the traditional off-season, downstream enterprises were hesitant to purchase at high prices, and trading activity was far from ideal. In east China, the market initially offered goods at the SMM average price. As the futures market surged, the spot premiums against the futures market narrowed and gradually shifted to offering at SMM-10. Traders reported that trading activity weakened today, with poor purchase willingness from downstream enterprises, and most transactions were executed under long-term contracts. On Wednesday, SMM A00 aluminum was reported at 20,900 yuan/mt, up 280 yuan/mt from the previous trading day, with a premium of 190 yuan/mt against the 07 contract, down 20 yuan/mt from the previous trading day. In the central China market, suppliers once again offered significant discounts in the morning session, with the spot market trading at a discount of 30-20 yuan/mt to SMM's central China price. Buyers exhibited strong fear of high prices, resulting in sluggish transactions. The price spread with east China widened. On Wednesday, SMM's central China A00 aluminum price against the SHFE aluminum 2507 contract closed at 20,260 yuan/mt, up 260 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was 150 yuan/mt, widening by 20 yuan/mt from the previous trading day, and it was trading at a premium of 40 yuan/mt against the 2507 contract.

Secondary Aluminum Raw Materials: On Wednesday, the spot primary aluminum price surged by 280 yuan/mt from the previous trading day, with SMM A00 aluminum closing at 20,900 yuan/mt. The aluminum scrap market struggled to catch up with the price increase. As the off-season in June progressed past the halfway mark, downstream scrap utilisation enterprises faced weak order releases, with procurement mainly driven by immediate needs. On Wednesday, the quoted prices for baled UBC aluminum scrap were concentrated in the range of 15,400-15,900 yuan/mt (tax-excluded), while shredded aluminum tense scrap prices were concentrated in the range of 16,000-17,500 yuan/mt (tax-excluded). Regionally, aluminum prices in Shanghai, Jiangsu, Shandong, and other regions were closely linked, with price adjustments ranging from 200-250 yuan/mt. In Jiangxi, Hubei, Henan, Foshan, and other regions, price adjustments lagged behind aluminum prices, with adjustments ranging from 100-150 yuan/mt. By product, baled UBC aluminum scrap prices continued to rise by 50 yuan/mt on Wednesday, while shredded aluminum tense scrap prices increased by 100 yuan/mt from the previous day. Prices for wheel hubs removed from vehicle and scrap motorcycle wheel rose by 100-200 yuan/mt from the previous day. Regarding the price difference between A00 aluminum and aluminum scrap, in Shanghai, the price spread between A00 aluminum and mechanical casting aluminum scrap widened by 8 yuan/mt to 1,858 yuan/mt from the previous day. In Foshan, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint increased by 211 yuan/mt to 1,718 yuan/mt from the previous day. Considering the actual difficulty in selling, aluminum scrap suppliers adopted a cautious wait-and-see attitude when adjusting prices amid rising aluminum prices. 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, potentially increasing the price sensitivity of aluminum scrap, a core raw material. Caution is advised against short-term volatility risks.

Secondary Aluminum Alloy: On Wednesday, the SMM A00 aluminum price surged by 280 yuan/mt from the previous trading day to 20,900 yuan/mt. Domestic SMM ADC12 prices rose by 100 yuan/mt to the range of 20,000-20,300 yuan/mt. Driven by the strong upward momentum of aluminum prices, secondary aluminum raw material prices actively followed suit, but the increase was weaker than that of primary aluminum, with an overall increase in the range of 100-200 yuan/mt. Although the continuous rise in cost side provided upward momentum for ADC12 prices, the actual increase was limited, with the market rising by a maximum of 100 yuan/mt. Currently in the traditional off-season for the industry, new orders are growing weakly, and persistent weak demand on the demand side is suppressing the upside room for ADC12 prices. However, the cost support logic still exists, and it is expected that ADC12 prices will maintain narrow adjustments in the short term.

Summary: On the macro front, the US Fed maintained interest rates unchanged as expected. Fed Chairman Powell stated at a press conference that the price increases triggered by tariffs would become more pronounced in the coming months, and the Fed would need to be confident that inflation was declining before initiating an interest rate cut. On the fundamentals side, domestic operating capacity of electrolytic aluminum remained stable, with a decrease in casting ingot volume contributing to the continued destocking of domestic aluminum ingot inventory. On the cost side, there were expectations of weakening prices for alumina and auxiliary materials, leading to diminished cost support for electrolytic aluminum. On the demand side, there was dual pressure from domestic seasonal weakness and trade uncertainties, which would cause the operating rate of aluminum processing enterprises to decline under pressure in the short term. 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 upside room, and 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 fluctuate at highs.

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

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