Macro Disturbances Coupled with Weak Off-Season Demand Intensify Aluminum Price Game Amid Cost and Inventory Support [SMM Aluminum Morning Meeting Summary]

7.11 SMM Aluminum Morning Meeting Summary

Futures Market: Last night, the most-traded SHFE aluminum 2508 contract opened at 20,690 yuan/mt, with a high of 20,795 yuan/mt, a low of 20,795 yuan/mt, and closed at 20,760 yuan/mt. Trading volume was 47,000 lots, and open interest was 260,000 lots. Last night, LME aluminum opened at $2,607/mt, with a high of $2,611/mt, a low of $2,607/mt, and closed at $2,608/mt.

Macro: (1) In response to whether China and the US would hold negotiations in early August, the Ministry of Commerce stated that both sides have maintained close communication at multiple levels regarding their respective concerns in the economic and trade fields. (Neutral★) (2) US President Trump posted on social media, urging Fed Chairman Powell to cut interest rates again. The day before, Trump criticized the Fed's current interest rate policy, stating that the Fed's set interest rates were at least 3 percentage points too high, and each percentage point of interest rate was costing the US $360 billion in refinancing costs annually. (Bullish★)

Fundamentals: (1) According to SMM statistics, as of July 10, the inventory of electrolytic aluminum ingots in domestic mainstream consumption areas was 466,000 mt, a decrease of 8,000 mt from the previous Thursday and a decrease of 12,000 mt from Monday. (Bullish★) (2) On July 10, SMM statistics showed that the inventory of electrolytic aluminum in the Shanghai Bonded Zone was 105,500 mt, and the inventory in the Guangdong Bonded Zone was 18,000 mt, totaling 123,500 mt, an increase of 4,400 mt from the previous week. (Bearish★) (3) According to SMM statistics, as of July 10, the inventory of aluminum billets in domestic mainstream consumption areas was 160,000 mt, an increase of 500 mt from Monday and an increase of 6,500 mt from the previous Thursday. (Bearish★)

Primary Aluminum Market: Yesterday morning, SHFE aluminum rose with increased positions to around 20,800 yuan/mt, and the activity in the spot market weakened. In east China, due to the rebound in aluminum prices, downstream enterprises' procurement sentiment pulled back, and spot order transactions declined, with transactions against the SMM average price at -10 yuan/mt. Yesterday, SMM A00 aluminum was reported at 20,820 yuan/mt, up 160 yuan/mt from the previous trading day, with a discount of 60 yuan/mt against the 07 contract, down 10 yuan/mt from the previous trading day. In the central China market, the center of aluminum prices pulled back earlier, leading to an increase in downstream just-in-time procurement volume. Coupled with a decrease in incoming cargoes, inventory showed destocking. However, after the center of aluminum prices rose during the day, downstream consumption weakened, and traders continuously adjusted premiums to sell. Transactions against the SMM central China average price were on par with to -10 yuan/mt. SMM central China A00 aluminum was recorded at 20,710 yuan/mt against the SHFE aluminum 2507 contract, up 160 yuan/mt from the previous trading day. The price spread between central China and Shanghai was -110 yuan/mt, unchanged from the previous trading day, with a discount of 170 yuan/mt against the 2507 contract.

Secondary Aluminum Raw Materials: Yesterday, the spot price of primary aluminum rose by 160 yuan/mt from the previous trading day. SMM A00 spot aluminum closed at 20,820 yuan/mt, and the overall price of the aluminum scrap market continued to rebound. Currently in the traditional off-season, downstream scrap utilization enterprises are experiencing weak order releases, with procurement mainly driven by immediate needs. Yesterday, the centralized quoted price for baled UBC aluminum scrap was 15,350-15,850 yuan/mt (tax excluded), while the centralized quoted price for shredded aluminum tense scrap was 15,900-17,400 yuan/mt (tax excluded). By product, baled UBC aluminum scrap prices rebounded by 50 yuan/mt MoM, slightly following the upward trend of aluminum prices. By region, Shanghai, Jiangsu, Shandong, and other regions closely followed aluminum price movements, with price adjustments ranging from 100-150 yuan/mt. In Guizhou, Hunan, Guangdong, Jiangxi, and other regions, price adjustments lagged behind aluminum price movements, with quoted prices remaining unchanged from the previous trading day. According to feedback from secondary aluminum enterprises, secondary aluminum alloy prices are currently low. Although scrap recycling is challenging, due to poor production starts, the upside room for prices is also limited. 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 160 yuan/mt from yesterday, further expanding to 1,975 yuan/mt. The price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai decreased by 3 yuan/mt from yesterday, contracting to 1,832 yuan/mt.

Secondary aluminum alloy: On the futures market, yesterday, the most-traded cast aluminum alloy futures contract 2511 opened at 19,820 yuan/mt, holding up well overall, reaching a high of 20,000 yuan/mt, a new record high since listing, and a low of 19,780 yuan/mt, closing at 19,940 yuan/mt, up 110 yuan/mt from the previous close, a 0.55% increase, with a trading volume of 4,446 and an open interest of 8,813. Bulls mainly increased their positions during the day. In the spot market, yesterday, the SMM A00 aluminum price surged by 160 yuan/mt from Wednesday to 20,820 yuan/mt, while the SMM ADC12 price increased by 100 yuan/mt to 20,100 yuan/mt. Recently, both domestic and overseas aluminum scrap supplies have tightened, directly leading to a significant increase in the difficulty of raw material procurement for secondary aluminum plants. Competition for "scrap" has intensified, while production costs continue to rise, and the losses on production of enterprises continue to expand, prompting manufacturers to raise their quoted prices. Constrained by both raw material shortages and weakening demand, multiple secondary aluminum manufacturers have been forced to cut production, with some even entering a state of shutdown. Overall, strong cost support and weak demand continue to battle, with ADC12 prices expected to maintain a weak and narrowly fluctuating pattern in July.

Summary: On the macro front, Trump has once again pressured the US Fed to cut interest rates, raising expectations for market easing policies. Sino-US economic and trade communications remain neutral, but Trump's tariff hike on 14 countries (effective August 1) has postponed the negotiation window, with trade friction uncertainties still suppressing global aluminum trade liquidity and exacerbating supply chain risk aversion. On the fundamental front, costs in the aluminum smelter industry have decreased this week. As of Thursday this week, the domestic instant complete average cost of aluminum smelter was approximately 16,550 yuan/mt, up about 80 yuan/mt from last Thursday, mainly due to a slight increase in alumina spot prices, driving a slight rebound in costs. Aluminum smelter profits decreased by about 120 yuan/mt from last week. Demand side, overall, the off-season atmosphere remained strong across most downstream sectors. Aluminum prices rose during the off-season, further suppressing demand, with operating rates in the aluminum processing sector remaining sluggish. PV module production schedules are expected to remain largely stable MoM in July, but due to operating losses at frame manufacturers, some companies have voluntarily reduced orders, leading to a pullback in operating rates. Inventory side, yesterday's aluminum ingot inventory destocking was mainly due to shipping schedules, with fewer arrivals causing the inventory buildup trend to reverse back to destocking, providing strong support for aluminum futures and spot prices, though the sustainability remains to be verified. Comprehensively, the domestic favorable macro environment remains unchanged, while the impact of overseas tariffs warrants caution. Fundamentally, fluctuating domestic aluminum ingot inventory levels continue to support prices, but weakening downstream demand during the off-season is evident, with spot premiums/discounts continuing to widen. Close attention should be paid to changes in inventory and demand going forward.

[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 shall not use this as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]

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