The bearish sentiment in fundamentals has risen again, and aluminum prices are fluctuating at highs [SMM Aluminum Morning Meeting Summary]

7.4 SMM Aluminum Morning Meeting Summary

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2508 contract opened at 20,640 yuan/mt, with a high of 20,680 yuan/mt, a low of 20,585 yuan/mt, and closed at 20,650 yuan/mt, down 0.15% from the previous close. LME aluminum opened at $2,616.5/mt, with a high of $2,624.0/mt, a low of $2,599.5/mt, and closed at $2,605.5/mt, down 0.34%.

Macro: (1) In response to reports that the US President plans to lead a business delegation to China, the Ministry of Commerce stated that there was no information to provide, but China's attitude remains consistent and clear. It is hoped that the US will work with China, under the strategic guidance of the two heads of state, to continuously enhance consensus, reduce misunderstandings, strengthen cooperation, and jointly promote the healthy, stable, and sustainable development of China-US economic and trade relations based on the principles of mutual respect, peaceful coexistence, and win-win cooperation. (Bullish ★) (2) The State Council issued a document to replicate and promote 77 pilot measures from the Shanghai Free Trade Zone, covering seven aspects including service trade, goods trade, digital trade, intellectual property protection, government procurement reform, "post-border" management system reform, and risk prevention and control. (Bullish ★) (3) In response to international attention on China's "0-kilometer" used car exports, the Ministry of Commerce stated that it will continue to work with relevant departments to strengthen guidance on used car exports and promote their healthy and orderly development. In addition, China's final ruling on the anti-dumping investigation into EU brandy will be made soon. (Neutral)

Fundamentals: (1) Affected by factors such as the high-temperature off-season, high aluminum prices, insufficient profit margins, and weak downstream demand, the operating rate of the aluminum processing industry this week fell by 0.1 percentage points MoM to 58.7%. (Bearish ★) (2) The China Passenger Car Association released data showing that in June, nationwide passenger car market retail sales reached 2.032 million units, up 15% YoY and 5% MoM. Among them, new energy market retail sales reached 1.071 million units, up 25% YoY and 4% MoM. (Bullish ★) (3) On July 3, Vedanta announced its key metal production for FY26Q1 (April-June 2025). Among them, Lanjigarh alumina production reached a record high of 587,000 mt, up 9% YoY and 36% MoM. The quarterly production of primary aluminum was 605,000 mt, up 1% YoY and flat MoM. (Bearish ★) (4) SMM data showed that this week, the proportion of liquid aluminum in domestic primary aluminum production fell to 75.17%, down nearly 1% from last Thursday. (Bearish ★)

Primary Aluminum Market: Yesterday, SHFE aluminum opened high and fluctuated in the morning session. As the first trading period ended, the futures market pulled back rapidly, closing at 20,870 yuan/mt. The overall spot market remained sluggish in the morning, with insufficient downstream purchase willingness. In the Gongyi area, spot discounts narrowed due to cargo source adjustments, market basis arbitrage, and upstream hold back cargoes, but there was no significant improvement in downstream demand. Specifically, in east China, the market continued to offer SMM -20 to -10 in the morning, with overall weak purchase willingness from downstream buyers. The spot-futures price spread narrowed yesterday, and trading improved slightly. SMM A00 aluminum was quoted at 20,860 yuan/mt yesterday, up 50 yuan/mt from the previous trading day, with a discount of 10 against the 07 contract, narrowing by 20 yuan/mt from the previous trading day. In the central China market, spot discounts improved slightly yesterday, mainly due to the influence of cargo allocation, market trading for basis arbitrage, and upstream enterprises holding back cargoes. However, actual downstream demand remained sluggish. The spot market in central China recorded transactions at +10 against SMM central China yesterday, with the price spread against east China narrowing to -190. SMM central China A00 aluminum was recorded at 20,680 yuan/mt against the SHFE aluminum 2507 contract yesterday, up 70 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was 190 yuan/mt, narrowing by 10 yuan/mt from the previous trading day, with a discount of 190 yuan/mt against the 2507 contract.

Secondary aluminum raw materials: The spot price of primary aluminum rose by 50 yuan/mt from the previous trading day yesterday, with SMM A00 spot aluminum closing at 20,860 yuan/mt. The aluminum scrap market prices followed the increase slightly. In the current traditional off-season, downstream scrap utilization enterprises have weak order releases, with purchases mainly driven by immediate needs. Yesterday, the centralized quotes for baled UBC aluminum scrap ranged from 15,350 to 15,850 yuan/mt (tax-excluded), and the centralized quotes for shredded aluminum tense scrap ranged from 15,800 to 17,300 yuan/mt (tax-excluded). By product, baled UBC aluminum scrap prices rose by 50 yuan/mt MoM from yesterday, following the aluminum price increase. Except for areas like Anhui and Hubei, where cargo shortages led to difficulties in purchasing for downstream scrap utilization enterprises and increased purchase prices, ADC12 aluminum shavings and shredded aluminum tense scrap prices increased by 100-200 yuan/mt. In other regions, aluminum tense scrap prices remained stable MoM from yesterday. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan increased by 60 yuan/mt from yesterday to 1,857 yuan/mt, while the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai decreased by 22 yuan/mt from yesterday to 1,845 yuan/mt. Next week, the aluminum scrap market is expected to hover at highs with cautious price adjustments. Supported by tight supply, shredded aluminum tense scrap prices are expected to remain resilient, fluctuating rangebound within the 15,800-17,400 yuan/mt range. Baled UBC aluminum scrap prices may continue to decline under off-season demand pressure, possibly dropping to 15,200-15,700 yuan/mt. Subsequent attention should be paid to marginal changes in raw material circulation (such as ADC12 aluminum shavings supply) and signals of terminal order recovery.

Secondary aluminum alloy: Aluminum prices continued to rise slightly on Thursday, but the secondary aluminum market struggled to catch up, with SMM ADC12 price range remaining stable at 20,000-20,200 yuan/mt. Entering July, factors such as the high-temperature off-season and high aluminum prices continued to impact downstream orders, with some downstream enterprises initiating production cuts. Despite active inquiries from futures-to-spot traders and increased trading volume of delivery brands during the week, the sluggish end-use consumption market remained a key resistance to price increases. Facing the dual pressures of raw material supply deficits and sluggish market demand, some secondary aluminum alloy producers have temporarily halted furnace operations for maintenance or reduced their operating rates. Overall, with no substantive demand improvements, prices encounter upward resistance, yet cost support logic remains intact—it is anticipated that secondary aluminum alloy prices will remain rangebound in the near term.

Summary: Macro perspective—domestic supportive policies continue to strengthen, maintaining the direction of promoting consumption; overseas macro conditions feature mixed bullish and bearish factors with residual risks. Fundamentals show increased casting ingot production at aluminum smelters in certain regions, coupled with downstream off-season dynamics and fear of high prices, resulting in subdued market transactions. Aluminum ingot inventory has seen slight buildup, while spot premiums/discounts have weakened notably. Short-term aluminum prices are expected to fluctuate at highs. Subsequent monitoring should focus on casting ingot volumes and inventory changes.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should exercise caution in decision-making, and should not use this as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]

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