Probability of Short-Term Conflict Escalation in the Middle East Decreases; Inventory Inflection Point Becomes Key Factor in Aluminum Market Trend [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Notes on June 24

Futures Market: Last night, the most-traded SHFE aluminum 2508 contract opened at 20,415 yuan/mt, with a high of 20,450 yuan/mt, a low of 20,325 yuan/mt, and closed at 20,445 yuan/mt. Trading volume was 45,000 lots, and open interest was 256,000 lots. Last night, LME aluminum opened at $2,588/mt, with a high of $2,588/mt, a low of $2,564.5/mt, and closed at $2,578/mt.

Macro Front: (1) Iran retaliated with missile strikes on a US airbase in Qatar. Trump thanked Iran for notifying in advance of the attack and later announced that Israel and Iran had reached a full ceasefire agreement. (Bearish ★) (2) Fed officials Bowman and Goolsbee both hinted that if inflationary pressures are contained, they would support an interest rate cut in July. (Bullish ★) (3) The preliminary US S&P Global Manufacturing PMI for June held steady at 52, the highest since February and better than market expectations. The raw material payment price index rose 5.4 points to 70, the largest increase in four years. The price acceptance indicator also saw a similar increase, indicating that producers are passing on cost increases, including import tariffs, to customers. (Neutral ★)

Fundamentals: (1) According to SMM statistics, as of June 23, the inventory of primary aluminum ingots in major domestic consumption areas was 464,000 mt, an increase of 15,000 mt from last Thursday and 6,000 mt from last Monday. In terms of outflows from warehouses, the weekly outflows of aluminum ingots in major domestic consumption areas were 108,800 mt in the past week, a decrease of 11,500 mt WoW. Although domestic aluminum ingot inventory was just shy of the year's low of 440,000 mt last Thursday, after the weekend, with the concentrated arrival of in-transit goods and weakened outflows due to the suppression of high aluminum prices in the near term, today's aluminum ingot inventory statistics showed an inventory buildup, the largest monthly increase, sparking market concern and worry. Among them, the Gongyi region was affected by significantly weakened downstream just-in-time cargo pick-up, difficulties in consuming imported supplies, and concentrated arrivals of north-west China supplies, with an inventory buildup of 14,000 mt, becoming the main factor in the overall domestic inventory buildup this week. (Bearish ★) (2) According to SMM statistics, during the period from June 17 to June 22, the total outflows of aluminum billets in China were 35,800 mt, a decrease of 2,400 mt from the previous period. (Bearish ★)

Primary Aluminum Market: Yesterday morning, the front-month SHFE aluminum contract jumped initially and then pulled back, with the futures market eventually falling below the daily average line of 2,050 yuan/mt and fluctuating rangebound. In east China, market transactions were mainly based on long-term contracts, with sluggish spot cargo transactions. During the day, with a relatively large volume of shipments, the market premium suffered a slight price collapse, with transactions at a discount of 10 to 20 yuan/mt against SMM. Yesterday, SMM A00 aluminum was reported at 20,650 yuan/mt, a decrease of 70 yuan/mt from the previous trading day, with a premium of 160 yuan/mt against the 07 contract, a decrease of 20 yuan/mt from the previous trading day. In the central China market, amid the off-season atmosphere, aluminum processing enterprises are increasingly cutting production. The market is primarily dominated by long-term contract transactions, with spot orders being scarce. After the opening of yesterday's morning market, shipments increased, and discounts widened again, with offers against the SMM average price falling to a discount of 20 to 30 yuan/mt. SMM recorded the A00 aluminum price in central China against the SHFE aluminum 2507 contract at 20,470 yuan/mt, down 90 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -180 yuan/mt, down 20 yuan/mt from the previous trading day, with a discount of 20 yuan/mt against the 2507 contract.

 Secondary aluminum raw materials: Yesterday, the spot primary aluminum price fell 70 yuan/mt from the previous trading day. SMM A00 spot aluminum closed at 20,650 yuan/mt, and aluminum scrap market prices generally pulled back. In the current traditional off-season, downstream scrap utilization enterprises are experiencing weak order releases, with procurement mainly driven by immediate needs. Yesterday, the centralized quotes for baled UBC aluminum scrap ranged from 15,300 to 15,800 yuan/mt (tax excluded), while the centralized quotes for shredded aluminum tense scrap ranged from 15,800 to 17,300 yuan/mt (tax excluded). Regionally, regions such as Shanghai, Jiangsu, Shandong, and Henan closely followed aluminum price movements, with price adjustments ranging from 50 to 100 yuan/mt. In contrast, regions like Anhui, Foshan, and Guizhou lagged behind aluminum price changes, with prices remaining flat compared to the previous day. Considering the actual difficulty in shipping, aluminum scrap suppliers adopted a cautious wait-and-see attitude towards price adjustments amid rising aluminum prices.

Secondary aluminum alloy: In the spot market, the SMM A00 aluminum price fell 70 yuan/mt from the previous trading day to 20,650 yuan/mt yesterday, while the domestic SMM ADC12 price decreased by 50 yuan/mt to 19,900-20,100 yuan/mt. Aluminum prices continued to decline slightly, leading to minor differentiation in market quotes. Some enterprises slightly lowered their quotes due to weak demand, while others maintained firm pricing supported by cost pressures. Overall, the rigid cost support continues to clash with weak off-season demand, keeping ADC12 prices fluctuating rangebound. As the off-season deepens, it is expected that ADC12 prices will remain in the doldrums in the short term. It is recommended to closely monitor the circulation of raw materials and marginal changes in off-season demand. In the import market, the CIF quotes for imported ADC12 rose to $2,430-2,470/mt, while the import spot price remained around 19,200 yuan/mt, with the immediate import loss widening to the 700-800 yuan/mt range. The local tax-excluded quotes for ADC12 in Thailand rose to 82-83 Thai baht/kg.

Summary: On the macro front, the probability of short-term conflict escalation in the Middle East has decreased, and the premium previously driven by risk-averse sentiment may pull back. On the fundamental side, domestic operating capacity for primary aluminum remains stable, with the proportion of liquid aluminum maintaining a high level, and the market's casting ingot supply remaining tight. On the demand side, overall, most downstream sectors are in the traditional off-season state, with significant feedback on production cuts in the downstream sector in central China. Local spot transactions have weakened, and market transaction prices have shown a continuous large discount. The weakening of off-season demand in the PV and home appliance sectors cannot be overlooked, with a noticeable decline in the operating rates of related sectors. The operating rate in the wire and cable sector has also declined due to the completion of the previous delivery period and high aluminum prices. On the inventory side, the rate of destocking has slowed, and low inventory levels still provide support to the futures market. On Monday this week, there was an inventory buildup, and it is necessary to observe whether the inflection point of destocking has officially formed. However, spot premiums/discounts have gradually pulled back. Overall, in the short term, supported by expectations for US Fed interest rate cuts and low inventory levels, aluminum prices may hover at highs. However, under the pressure of geopolitical risks subsiding and inventory buildup in the fundamentals, the upside room is relatively limited. Spot premiums/discounts may fall back from highs, and it is necessary to closely monitor changes in inventory and demand in the future.

[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 not related to SMM.]

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