The signal of tariff implementation strengthens, and aluminum prices are likely to fluctuate at highs amid low inventory [SMM Aluminum Morning Meeting Summary]

7.9 SMM Aluminum Morning Meeting Summary

Futures Market: Last night, the most-traded SHFE aluminum 2508 contract opened at 20,510 yuan/mt, with a high of 20,560 yuan/mt, a low of 20,495 yuan/mt, and closed at 20,540 yuan/mt. Trading volume was 32,000 lots, and open interest was 255,000 lots. Last night, LME aluminum opened at $2,572/mt, with a high of $2,600/mt, a low of $2,569.5/mt, and closed at $2,589/mt.

Macro: (1) US President Trump posted on social media that tariffs would be implemented starting August 1, 2025, "and that date will not change, nor will it change in the future." A tax letter to the EU may be sent in the next two days. Additionally, Trump stated at a cabinet meeting that he is still planning to impose tariffs on specific industries, including pharmaceuticals, semiconductors, and metals. (Bearish ★) (2) According to Bloomberg, US Treasury Secretary Bentsen said on the 7th local time that he expects to meet with Chinese officials in the coming weeks to advance Sino-US consultations on trade and other issues. "I will meet with my Chinese peers sometime in the next few weeks." (Neutral ★)

Fundamentals: (1) According to SMM statistics, as of July 7th, the inventory of primary aluminum ingots in major domestic 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, regarding the inventory of aluminum billets in two domestic locations, the inventory of aluminum billets in Guangdong was 74,100 mt, and the inventory of aluminum billets in Wuxi was 22,800 mt, totaling 96,900 mt, with a MoM increase of 400 mt. (Bearish ★)

Primary Aluminum Market: Yesterday morning, the center of the front-month SHFE aluminum contract shifted down to around 20,630 yuan/mt before slightly V-shaped reversing to around 20,670 yuan/mt. East China continued to experience inventory buildup, with increased market arrivals, resulting in a fully oversupplied buyer's market. Despite the downward shift in the aluminum price center, downstream inquiries increased, but market transactions were still at a discount of 20 yuan/mt against SMM. Yesterday, SMM A00 aluminum was reported at 20,600 yuan/mt, down 40 yuan/mt from the previous trading day, at a discount of 50 yuan/mt against the 07 contract, down 20 yuan/mt from the previous trading day. Trading activity in the Central China market was slightly weaker than the previous trading day. Against the backdrop of some cargo being transferred to areas surrounding Central China and large traders hoarding warrants in the market to cope with the risk of a short squeeze in the 07 contract, after experiencing several consecutive days of premium trading against the Central China average price, market activity in Central China began to pull back amid the off-season atmosphere, with transactions closing at a premium of 20 yuan/mt against the SMM Central China average price. SMM Central China A00 aluminum was recorded at 20,480 yuan/mt against the SHFE aluminum 2507 contract, down 30 yuan/mt from the previous trading day, with a price spread of -120 yuan/mt between Henan and Shanghai, narrowing by 10 yuan/mt from the previous trading day, and at a discount of 170 yuan/mt against the 2507 contract.

Secondary aluminum raw materials: Yesterday, the spot price of primary aluminum fell by 40 yuan/mt compared to the previous trading day. SMM A00 spot aluminum closed at 20,600 yuan/mt, and aluminum scrap market prices generally continued to decline. Currently in the traditional off-season, downstream scrap utilization enterprises have weak order releases, with procurement mainly driven by immediate needs. Yesterday, the centralized quoted price for baled UBC aluminum scrap ranged from 15,250 to 15,750 yuan/mt (tax-exclusive), while the quoted price for shredded aluminum tense scrap ranged from 15,900 to 17,400 yuan/mt (tax-exclusive). By product, baled UBC aluminum scrap prices fell by 50 yuan/mt MoM from yesterday, following the decline in aluminum prices. By region, Shanghai, Jiangsu, Shandong, and other regions closely followed aluminum price movements, with price adjustments ranging from 50 to 100 yuan/mt. In Guizhou and Hunan, price adjustments lagged behind aluminum price movements, with quoted prices remaining unchanged from the previous trading day. In Jiangxi, aluminum scrap prices were raised yesterday, with both wrought and aluminum tense scrap prices increasing by 100 yuan/mt. This counter-trend increase reflects a further tightening of aluminum scrap supply. Recently, secondary aluminum scrap utilization enterprises in Fujian and Guangxi have seen a sharp drop in operating rates due to aluminum scrap shortages, with some even halting production for maintenance. In terms of 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 100 yuan/mt from yesterday to 1,755 yuan/mt, while the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai decreased by 12 yuan/mt from yesterday to 1,830 yuan/mt.

Secondary aluminum alloy: On the futures market, yesterday, the most-traded cast aluminum alloy futures contract 2511 opened at 19,755 yuan/mt, reaching a high of 19,895 yuan/mt and a low of 19,735 yuan/mt, before closing at 19,850 yuan/mt, up 100 yuan/mt from the previous close, representing a 0.51% increase. Trading volume was 3,096, and open interest was 8,685, with bulls mainly increasing their positions during the day. On the spot market, SMM A00 aluminum prices fell by 40 yuan/mt from Monday to 20,600 yuan/mt, while SMM ADC12 prices remained stable at 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 and spot traders have been actively inquiring about prices and trading volumes for delivery brands have increased, the end-use consumption market remains sluggish, posing a key resistance to price increases. Faced with a dual squeeze of raw material supply shortages and weak market demand, some secondary aluminum alloy manufacturers have temporarily halted production for maintenance or reduced their operating rates. Overall, without substantial improvements in demand, prices are encountering resistance, but cost support logic remains intact. It is expected that secondary aluminum alloy prices will maintain a narrow rangebound fluctuation in the short term.

Summary: On the macro front, Trump has clearly stated that tariffs will be imposed on 14 countries (including the EU) starting August 1, targeting key industries such as semiconductors and metals, significantly raising market risk aversion. US Treasury Secretary Bessent stated that "meetings with China will take place in the coming weeks," which, although not releasing substantive positive news, provides a buffer period for the escalation of trade frictions. 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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