Amid Low Inventory and Off-Season Demand, Aluminum Prices Fluctuate at Highs [SMM Aluminum Price Weekly Review]

On the macro front, the US Fed maintained its benchmark interest rate unchanged at 4.25%-4.50% during the period, marking the fourth time it has kept rates steady since January. The Fed's dot plot indicates that it is expected to cut interest rates twice in 2025, and by 25 basis points each in 2026 and 2027, delaying the expectations for interest rate cuts. Meanwhile, US domestic consumption saw the largest decline in retail sales since the beginning of the year in May, with the largest drop in restaurant and bar spending in over two years, indicating overall weak demand. Domestically, the 2025 Lujiazui Forum was held in Shanghai, where the People's Bank of China (PBOC), the National Financial Regulatory Administration (NFRA), the China Securities Regulatory Commission (CSRC), and the State Administration of Foreign Exchange (SAFE) announced multiple financial measures to support high-level opening-up. The PBOC will introduce eight policy initiatives to support the construction of Shanghai as an international financial center, including establishing an international operational center for the digital yuan and pioneering innovations in structural monetary policy tools. The SAFE will implement policies nationwide to support research institutions in attracting and utilizing foreign investment and expanding cross-border financing facilities for technology firms, creating a notably bullish atmosphere.

On the fundamental front, the operating capacity of domestic aluminum smelters remained stable, with the proportion of liquid aluminum maintaining high levels, and the market supply of casting ingots remaining tight. SMM learned that a few aluminum smelters slightly increased their casting ingot output this week, but it is still difficult to change the overall tight supply situation in the market. Costs on the cost side of the aluminum smelting industry declined during the week. As of Thursday this week, the domestic instantaneous fully loaded average cost of aluminum smelting was approximately 17,030 yuan/mt, down about 169 yuan/mt from last Thursday, mainly due to the narrow decline in spot transaction prices of alumina, which drove down costs. As a result, the profits of aluminum smelters increased by 289 yuan/mt compared to last week. Additionally, on the demand side, most downstream sectors are generally in a traditional off-season state, with significant production cuts reported in downstream industries in central China. Local spot transactions have weakened, and market transaction prices have seen a continuous large discount. From the perspective of downstream demand sectors, the weakening demand in the off-season for PV and home appliances cannot be ignored, with a noticeable decline in the operating rates of relevant sectors. The wire and cable sector has also seen a decline in operating rates due to the completion of the previous delivery cycle and high aluminum prices. In terms of inventory, according to SMM statistics, as of June 19, domestic aluminum social inventory stood at 449,000 mt, a decrease of 9,000 mt from Monday. The pace of destocking has slowed, and low inventory levels still provide support to the futures market, but spot premiums/discounts have gradually pulled back.

In summary, domestically, the bullish atmosphere on the macro front remains unchanged, while the bearish impact of overseas macro factors requires caution. On the fundamental front, the low inventory levels of domestic aluminum ingots provide support to aluminum prices, but the weakening demand in the downstream sector during the off-season is evident. Spot premiums/discounts may pull back from highs, and subsequent attention should be focused on changes in inventory and demand. Next week, the most-traded SHFE aluminum contract is expected to trade around 20,200-20,700 yuan/mt, while LME aluminum is expected to trade around $2,480-2,550/mt.

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