Short-term aluminum prices are under pressure and fluctuating, with tariff threats and inventory buildup dominating market sentiment [SMM Aluminum Morning Meeting Summary]

7.8 SMM Aluminum Morning Meeting Summary

Futures Market: Last night, the most-traded SHFE aluminum 2508 contract opened at 20,460 yuan/mt, with a high of 20,520 yuan/mt, a low of 20,430 yuan/mt, and closed at 20,490 yuan/mt. Trading volume was 42,000 lots, and open interest was 257,000 lots. Last night, LME aluminum opened at $2,572/mt, with a high of $2,582/mt, a low of $2,569.5/mt, and closed at $2,579.5/mt.

Macro: (1) US President Trump has successively announced tariff letters to multiple countries on social media. As of now, he has threatened the latest tariff rates on 14 countries. (Bearish ★) (2) Goldman Sachs said the US Fed may cut policy interest rates in September. Due to the weakening impact of tariffs and falling inflation, the US Fed may cut interest rates earlier. The expected terminal interest rate range of the US Fed is 3.00-3.25%, compared to the previous expectation of 3.50-3.75%. (Bullish ★) (3) The EU seeks to reach a preliminary trade agreement with the US this week, so that the EU can lock in a 10% tariff rate after the August 1 deadline while negotiating a long-term agreement. The Portuguese Finance Minister said that the EU and the US are expected to reach a "very low" tariff agreement, likely below 10%. (Neutral ★)

Fundamentals: (1) According to SMM statistics, as of July 7, the inventory of primary aluminum ingots in domestic mainstream consumption areas was 478,000 mt, an increase of 4,000 mt from last Thursday and an increase of 10,000 mt from last Monday. (Bearish ★) (2) According to SMM statistics, as of July 7, the inventory of aluminum ingots in Guangdong was 144,000 mt; the inventory of aluminum ingots in Wuxi was 120,000 mt; the inventory of aluminum ingots in Gongyi was 72,000 mt. The total inventory in the three areas was 336,000 mt, unchanged from last Thursday. (Neutral ★) (3) According to SMM statistics, as of July 7, the inventory of aluminum billets in domestic mainstream consumption areas was 159,500 mt, an increase of 6,000 mt from last Thursday and an increase of 12,000 mt from last Monday. It is expected that the inventory of aluminum billets will continue to build up in the short term. (Bearish)

Primary Aluminum Market: In the morning session yesterday, the center of the front-month SHFE aluminum contract moved down to around 20,650 yuan/mt. As the center of the futures market moved down, overall market trading improved. East China continued to experience inventory buildup, and the market was in a buyer's market with oversupply. Despite the decline in aluminum prices, downstream inquiries increased, but market transactions were still at a discount of 10 to 20 yuan/mt against SMM. Yesterday, SMM A00 aluminum was reported at 20,640 yuan/mt, down 130 yuan/mt from the previous trading day, at a discount of 30 yuan/mt against the 07 contract, down 10 yuan/mt from the previous trading day. Trading in the central China market continued to improve during the day. Main reasons: 1. Some cargoes were previously transferred to the surrounding areas of central China; 2. Major traders previously hoarded warrants in the market to cope with the risk of squeezing the 07 contract; 3. After the decline in the center of aluminum prices, downstream purchases slightly increased, and transactions were made at a premium of 20-30 yuan/mt against the SMM central China average price. SMM central China A00 aluminum recorded a price of 20,510 yuan/mt against the SHFE aluminum 2507 futures contract, down 110 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -130 yuan/mt, narrowing by 20 yuan/mt from the previous trading day, with a discount of 160 yuan/mt against the 2507 futures contract.

Secondary aluminum raw materials: Yesterday, the spot price of primary aluminum fell by 130 yuan/mt from the previous trading day. SMM A00 spot aluminum closed at 20,640 yuan/mt, with aluminum scrap market prices generally correcting downward. In the current traditional off-season, downstream scrap utilization enterprises have seen weak order releases, with procurement mainly driven by immediate needs. Yesterday, the centralized quotes for baled UBC aluminum scrap ranged from 15,200-15,700 yuan/mt (tax-exclusive), while those for shredded aluminum tense scrap ranged from 15,800-17,300 yuan/mt (tax-exclusive). By product, baled UBC aluminum scrap prices fell by 100 yuan/mt MoM, following the downward trend of aluminum prices. By region, Shanghai, Jiangsu, Shandong, and other areas closely followed aluminum price movements, with price adjustments ranging from 100-150 yuan/mt. In Jiangxi, Foshan, Hunan, and other areas, price adjustments lagged behind aluminum price movements, with quotes remaining unchanged from the previous trading day.

Secondary aluminum alloy: On the futures market, yesterday, the most-traded cast aluminum alloy 2511 futures contract opened at the highest price of 19,885 yuan/mt, reached a low of 19,685 yuan/mt, and closed at 19,750 yuan/mt, down 135 yuan/mt or 0.68% from last Friday, with a trading volume of 4,207 and an open interest of 8,448. Bulls mainly reduced their positions during the day. In the spot market, SMM A00 aluminum prices fell by 130 yuan/mt from last Friday to 20,640 yuan/mt, while SMM ADC12 prices decreased by 100 yuan/mt to 20,000 yuan/mt. After July, factors such as the high-temperature off-season and high aluminum prices have continued to impact downstream orders, with some downstream enterprises initiating production cuts. Although futures-to-spot traders have been actively inquiring and the trading volume of delivery brands has increased, the end-use consumption market remains sluggish, posing a key resistance to price increases. Faced with the dual pressures of raw material supply deficits and weak market demand, some secondary aluminum manufacturers have temporarily halted their furnaces for maintenance or reduced their operating rates. Overall, in the absence of substantial demand improvements, prices encounter resistance on the upside, but the cost support logic remains intact. It is expected that secondary aluminum alloy prices will maintain a rangebound fluctuation in the short term. In the import market, the CIF quotes for imported ADC12 remained at 2,450-2,480 US dollars/mt, with imported spot prices hovering around 19,200 yuan/mt and immediate import losses around 800 yuan/mt. Local ADC12 quotes in Thailand (tax-exclusive) were concentrated at 82-83 Thai baht/kg.

Summary: On the macro front, Trump's threat to impose tariffs (up to 30%) on 14 countries may curb the liquidity of global aluminum trade and exacerbate supply chain uncertainties. Although the EU is seeking a preliminary agreement with the US for a "less than 10%" tariff rate to alleviate tariff pressure, the outcome of negotiations remains uncertain. Fundamentals indicate that aluminum smelters in some regions have increased casting ingot output. Entering July, downstream sectors are in a pronounced off-season, coupled with persistently high aluminum prices further suppressing production activities. Spot aluminum transactions have been subdued, aluminum ingot inventory has continued to build up, and spot premiums/discounts have weakened significantly. The real-time cost of electrolytic aluminum continued to decline MoM. Overall, domestic inventories of electrolytic aluminum and aluminum billets continue to accumulate, coupled with weak demand during the off-season, sluggish orders, and export constraints, suppressing the upside potential for prices. Aluminum prices are expected to face intensified downside risks at elevated levels in the near term, though the upside potential remains limited. Close attention should be paid to casting ingot output and inventory changes.

[The information provided is for reference only. This article does not constitute direct investment research or decision-making advice. Clients should exercise caution in decision-making, avoid relying solely on this information, and understand that SMM bears no responsibility for any decisions made by clients.]

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