Tariff issue and domestic aluminum ingot inventory buildup put short-term pressure on aluminum prices [SMM Aluminum Morning Meeting Summary]

7.14 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 20,695 yuan/mt, a low of 20,635 yuan/mt, and closed at 20,645 yuan/mt. Trading volume was 31,800 lots, and open interest was 250,000 lots. On the previous trading day, LME aluminum opened at $2,607/mt, with a high of $2,614/mt, a low of $2,589.5/mt, and closed at $2,602/mt.

Macro: (1) On July 12 local time, the Mexican Foreign Ministry and the Ministry of Economy stated in a joint statement that, in response to the US announcement of imposing a new 30% tariff on Mexican products exported to the US starting from August 1, the Mexican government considered this "unfair treatment" and had initiated negotiations with the US to protect border enterprises and employment. (Bearish ★) (2) On Saturday, European Commission President Ursula von der Leyen stated in a declaration that the US's imposition of a 30% tariff on EU exports would disrupt important trans-Atlantic supply chains and harm the interests of enterprises and consumers on both sides of the Atlantic. The EU always prioritizes resolving issues through negotiations. (Bullish ★) (3) A strategist at Deutsche Bank recently warned that US President Trump might fire Fed Chairman Powell, which is a significant and underestimated risk that could trigger a sell-off of the US dollar and US Treasury bonds. (Bullish ★)

Fundamentals: (1) In June, the operating rate of China's primary aluminum alloy industry was 50.9%. After excluding the impact of inconsistent operating days from May, it decreased by 1.2% MoM, and the off-season atmosphere became increasingly pronounced. In June, the primary aluminum alloy PMI was recorded at 36.5%, a significant drop of 5 percentage points MoM from May, remaining below the 50 mark with a deepening contraction, indicating a significant increase in downward pressure on the industry. (Bearish ★) (2) On July 11, LME aluminum inventory was recorded at 400,300 mt, an increase of 4,550 mt from the previous day, representing a growth rate of 1.15%. In the most recent week, LME aluminum inventory increased by 36,400 mt, representing a growth rate of 9.99%. In the most recent month, LME aluminum inventory increased by 42,700 mt, representing a growth rate of 11.93%. (Bearish ★) (3) According to SMM statistics, on July 14, the inventory of electrolytic aluminum ingots in domestic mainstream consumption areas was 501,000 mt, an increase of 35,000 mt from the previous Thursday. (Bearish ★)

Primary Aluminum Market: On Friday morning, the center of SHFE aluminum prices pulled back slightly, falling to around 20,850 yuan/mt below the daily average line and fluctuating rangebound. In the off-season, demand in east China was weak, with daily shipments significantly exceeding spot orders for purchases, and transactions were conducted at around -10 yuan/mt against the SMM average price. On Friday, SMM A00 aluminum was reported at 20,790 yuan/mt, a decrease of 30 yuan/mt from the previous trading day, with a discount of 70 yuan/mt against the 07 contract, a decrease of 10 yuan/mt from the previous trading day. In the early stage, the center of aluminum prices in the central China market pulled back, with an increase in downstream just-in-time procurement volume and a decrease in incoming cargo, leading to destocking. However, after the center of aluminum prices returned above 20,800 yuan/mt, downstream consumption weakened, and traders continuously adjusted premiums for shipments, offering discounts of 20 to 30 yuan/mt against SMM central China prices, with intense "rat race" competition in premiums. On Friday, SMM central China A00 aluminum closed at 20,660 yuan/mt against the SHFE aluminum 2507 futures contract, down 50 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -130 yuan/mt, expanding by 20 yuan/mt from the previous trading day, with a discount of 200 yuan/mt against the 2507 contract.

Secondary aluminum raw materials: On Friday, the spot price of primary aluminum fell by 30 yuan/mt from the previous trading day, with SMM A00 spot aluminum closing at 20,790 yuan/mt. In the aluminum scrap market, prices in some regions lagged behind and continued to rise. During the traditional off-season, downstream scrap utilization enterprises faced weak order releases, with procurement mainly driven by just-in-time needs. On Friday, the centralized quoted price for baled UBC aluminum scrap ranged from 15,400 to 15,900 yuan/mt (tax not included), and the centralized quoted price for shredded aluminum tense scrap ranged from 16,000 to 17,500 yuan/mt (tax not included). By product, baled UBC aluminum scrap prices rebounded by 50 yuan/mt from the previous day. By region, Shanghai, Jiangsu, Shandong, and other places closely followed aluminum price movements, with price adjustments ranging from 0 to 50 yuan/mt. Hunan, Guangdong, Jiangxi, Anhui, and other places lagged behind aluminum price movements, with centralized price increases on Friday. According to feedback from secondary aluminum enterprises, secondary aluminum alloy prices are currently low. Although scrap recycling is a challenge, constrained by poor operating rates, the upside room for prices is also limited.

Secondary aluminum alloy: On the futures market, the most-traded cast aluminum alloy 2511 futures contract opened at 19,945 yuan/mt on Friday, reaching a high of 20,050 yuan/mt and a low of 19,780 yuan/mt, and closing at 19,915 yuan/mt, down 10 yuan/mt or 0.01% from the previous trading day, with a trading volume of 3,038 and an open interest of 8,851. Bears dominated the intraday position increases. In the spot market, on Friday, SMM A00 aluminum prices fell by 30 yuan/mt from Thursday to 20,790 yuan/mt, with secondary aluminum market prices remaining stable. SMM ADC12 prices held steady at 20,100 yuan/mt. Recently, both domestic and overseas aluminum scrap supplies have tightened, significantly increasing the difficulty of raw material procurement for secondary aluminum plants. The "scramble for scrap" competition in the market has intensified, while production costs continue to rise, and the scope of production losses for enterprises continues to expand, leading to upward adjustments in enterprise quotes. Constrained by both raw material shortages and weakening demand, multiple secondary aluminum plants have been forced to cut production, with some even entering shutdown status. Overall, strong cost support and weak demand suppression continue to battle, with ADC12 prices expected to maintain a fluctuating rangebound pattern in July.

Summary: On the macro side, the domestic favorable atmosphere remains unchanged, and the impact of overseas tariffs needs vigilance. On the fundamental side, domestic operating capacity for primary aluminum slightly decreased due to replacement projects, with the proportion of liquid aluminum dropping to 74.78% and casting ingot volume increasing. Cost side, there has been an upward trend recently due to rising alumina prices. On the demand side, most downstream sectors are in a strong off-season atmosphere, with aluminum prices rising during the off-season, further suppressing demand. The operating rate in the aluminum processing sector remains sluggish. Additionally, domestic social inventory of primary aluminum ingots has once again turned to an inventory buildup trend. SMM expects aluminum prices to be in the doldrums in the short term, with subsequent focus on inventory and demand changes.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Customers should make prudent decisions and should not use this information to replace their independent judgment. Any decisions made by customers are not related to SMM.]

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