Macro trends and fundamentals are in tension, and the short-term volatile pattern of the aluminum market is difficult to change [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Summary on June 20

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2507 contract opened at 20,540 yuan/mt, with a high of 20,560 yuan/mt, a low of 20,505 yuan/mt, and closed at 20,540 yuan/mt, down 45 yuan/mt or 0.22% from the previous close. LME aluminum opened at $2,544/mt on the previous trading day, with a high of $2,549.5/mt, a low of $2,515/mt, and closed at $2,525.5/mt, down $21/mt or 0.82%.

Macro: (1) On the afternoon of June 19, President Xi Jinping had a phone call with Russian President Vladimir Putin, focusing on exchanging views on the situation in the Middle East. In response to the current situation, Xi Jinping put forward four proposals. First, promoting a ceasefire and stopping the fighting is the top priority; second, ensuring the safety of civilians is of utmost importance; third, initiating dialogue and negotiations is the fundamental way out; fourth, the international community's efforts to promote peace are indispensable. (Bullish ★) (2) The Bank of England maintained interest rates at 4.25%, with a more divided voting result than expected. Three members advocated for a 25-basis-point interest rate cut to address signs of a slowing job market and weak economic growth. (Bearish ★)

Fundamentals: (1) According to SMM statistics, on June 19, the inventory of primary aluminum ingots in major domestic consumption areas was 449,000 mt, down 9,000 mt from Monday this week and 11,000 mt from last Thursday. On a YoY basis, it was down 307,000 mt from the same period last year and 69,000 mt from the same period in 2023, remaining at a low level compared to the same period in the past three years and just shy of the year's low inventory level of 440,000 mt. The supportive effect of low inventory on aluminum prices remains strong. (Bullish ★) (2) This week, the downstream aluminum processing industry experienced a strong off-season atmosphere, with the weekly operating rate down 0.6 percentage points MoM to 59.8%. (Bearish ★)

Primary Aluminum Market: On Thursday, influenced by the low inventory and continuous destocking of aluminum ingots, the price center of SHFE aluminum shifted upward in the morning session. However, due to the off-season impact, actual transactions were generally average, and the futures market pulled back significantly, with prices falling. Market transactions improved somewhat, but downstream purchases were still mainly on an as-needed basis. In east China, the market offered goods at +10 yuan/mt above the SMM average price in the early morning, with some good brands offering at +20 yuan/mt. However, due to insufficient downstream demand and persistent fear of high prices, downstream buyers considered purchasing at SMM-10 yuan/mt to the average price. On Thursday, SMM A00 aluminum was reported at 20,770 yuan/mt, down 130 yuan/mt from the previous trading day, with a premium of 180 yuan/mt against the 07 contract, down 10 yuan/mt from the previous trading day. In the central China market, suppliers continued to offer goods at large discounts in the morning session, with significant production cuts downstream and poor trading in the spot market. The spot market offered discounts of 30 to 20 yuan/mt against SMM central China, with -20 yuan/mt being more common, and the price spread with east China widened again. On Thursday, the SMM A00 aluminum price against the SHFE aluminum 2507 contract in central China was recorded at 20,610 yuan/mt, down 140 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was 160 yuan/mt, widening by 10 yuan/mt from the previous trading day, and it was at a premium of 20 yuan/mt against the 2507 contract.

Secondary aluminum raw materials: On Thursday, the spot primary aluminum price fell by 130 yuan/mt from the previous trading day. The SMM A00 aluminum spot price closed at 20,770 yuan/mt, while the aluminum scrap market prices struggled to catch up overall. As the off-season in June progressed past the halfway mark, downstream scrap utilization enterprises faced challenges in releasing orders, with procurement primarily driven by immediate needs. On Thursday, the centralized quotes for baled UBC aluminum scrap ranged from 15,450 to 15,950 yuan/mt (tax-excluded), while the centralized quotes for shredded aluminum tense scrap ranged from 15,900 to 17,400 yuan/mt (tax-excluded). By region, Shanghai, Jiangsu, Shandong, and other places closely tracked aluminum prices, with price adjustments ranging from 100 to 150 yuan/mt. Jiangxi, Hubei, Henan, Foshan, and other places lagged behind aluminum price adjustments, with price adjustments also ranging from 100 to 150 yuan/mt. By product, baled UBC aluminum scrap prices continued to rise by 50 yuan/mt on Thursday, while shredded aluminum tense scrap prices pulled back by 100 yuan/mt from the previous day. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai increased by 21 yuan/mt from the previous day to 1,837 yuan/mt, while the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan decreased by 120 yuan/mt from the previous day to 1,598 yuan/mt. Considering the actual difficulty in shipping, aluminum scrap suppliers adopted a cautious wait-and-see attitude towards price adjustments amid rising aluminum prices. Next week, the aluminum scrap market is expected to continue the pattern of "fluctuating at highs with product differentiation," remaining generally strong. Due to persistent supply shortages, aluminum tense scrap prices exhibit significant resilience, with shredded aluminum tense scrap (tax-excluded) fluctuating within the range of 15,800 to 17,400 yuan/mt, showing relatively limited declines. Baled UBC aluminum scrap is expected to experience a mild pullback to 15,200 to 15,600 yuan/mt (tax-excluded), with a potential weekly decline of 100 to 150 yuan/mt. Regional price differences will further widen: East China (Shanghai, Shandong) may experience daily price adjustments of up to 200 yuan/mt due to the linkage with primary aluminum and policy disruptions, leading to significant volatility. Inland provinces (Jiangxi, Hubei, etc.) may face insufficient upward momentum in price adjustments due to supply and demand differentiation and lagging price adjustments, potentially leading to a further expansion of price differences.

Secondary aluminum alloy: On Thursday, the SMM A00 aluminum price fell by 130 yuan/mt from the previous trading day to 20,770 yuan/mt. The domestic SMM ADC12 price decreased by 50 yuan/mt to 20,000-20,200 yuan/mt, primarily due to the resumption of the downward trend in aluminum prices, which drove down the prices of secondary aluminum raw materials. This, combined with insufficient new orders during the off-season and the impact of low-priced supplies flooding the market, collectively dragged down the ADC12 price. However, the current tight supply situation of aluminum tense scrap persists, providing cost-side support for prices. It is expected that the ADC12 price will maintain narrow adjustments in the short term, with continuous attention needed to changes in raw material circulation and off-season demand.

Summary: On the macro front, the US Fed maintained interest rates unchanged on Wednesday. US Fed policymakers still expect a 0.5 percentage point interest rate cut this year, but they have slowed the pace of future rate cuts. However, Fed Chairman Powell warned against overemphasizing this outlook, noting that with the impending increase in import tariffs, "considerably high" inflation is expected in the future. Fundamentals side, the operating capacity of domestic aluminum has remained stable, with a decrease in casting ingot volume contributing to the ongoing destocking of domestic aluminum ingot inventory. On the cost side, there are expectations of weakening prices for alumina and auxiliary materials, leading to a reduction in cost support for aluminum. On the demand side, there is dual pressure from domestic seasonal weakness and trade uncertainties, which will cause the operating rate of short-term aluminum processing enterprises to decline under pressure. Overall, the current low inventory and the expectation 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 ingots in major consumption areas may soon face a situation of weak supply and demand, with short-term aluminum prices mainly fluctuating 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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