Domestic positive factors support the market amid off-season inventory buildup, aluminum prices fluctuate at highs focusing on changes in inventory and demand [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Notes on July 16

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2508 contract opened at 20,415 yuan/mt, with a high of 20,445 yuan/mt, a low of 20,370 yuan/mt, and closed at 20,390 yuan/mt. The trading volume was 24,000 lots, and the open interest was 203,000 lots. On the previous trading day, LME aluminum opened at $2,596.5/mt, with a high of $2,604.5/mt, a low of $2,574.5/mt, and closed at $2,583/mt.

Macro: (1) In June, the US CPI increased by 2.7% YoY, with an estimate of 2.6% and a previous value of 2.4%; it increased by 0.3% MoM, with an estimate of 0.3% and a previous value of 0.1%. The core CPI increased by 2.9% YoY, with an estimate of 2.9%; it increased by 0.2% MoM, with an estimate of 0.3%. (Bullish ★) (2) Jensen Huang, the founder of NVIDIA, will attend the opening ceremony of the 3rd China International Supply Chain Expo on July 16. He stated that the US has approved the sale of H20 chips to China, and NVIDIA will launch the RTXpro GPU. The Chinese market is so vast and dynamic, with rapid AI development. There are 50% of the world's AI researchers here. Therefore, it is indeed crucial for US companies to establish roots in the Chinese market. (Bullish ★) (3) Sheng Laiyun, Deputy Director of the National Bureau of Statistics: In H1, domestic demand was the main driver of China's economic growth. In H2, consumption policies will continue to be strengthened. At this stage, the potential for fixed-asset investment remains very large, and prices will rebound mildly from a low level. (Bullish ★)

Fundamentals: (1) According to SMM statistics, on July 15, the aluminum ingot inventory in Guangdong was 148,000 mt; in Wuxi, it was 123,500 mt; and in Gongyi, it was 70,500 mt. The total inventory in these three locations was 342,000 mt, a decrease of 5,000 mt from the previous trading day. Regarding the inventory of aluminum billet in two domestic locations, the aluminum billet inventory in Guangdong was 76,000 mt, and in Wuxi, it was 22,100 mt, totaling 98,100 mt, a decrease of 200 mt WoW. (Bullish ★) (2) According to SMM's assessment, the inventory turning point in the off-season has already appeared at the end of June, and the aluminum ingot inventory buildup trend will remain unchanged in the second half of July. It is temporarily expected that the inventory will build up to 550,000-600,000 mt by the end of July. (Bearish ★)

Primary Aluminum Market: On Tuesday, SHFE aluminum opened and maintained oscillation around 20,470 yuan/mt. Compared with the futures-spot price difference of the previous week, after a sharp drop the day before, the market trading atmosphere improved, and downstream purchase willingness increased compared with the previous week, driving a slight destocking in the mainstream consumption areas during the week. Specifically, in east China, the market still offered goods at -10 yuan/mt against the SMM average price in the morning, and downstream purchase willingness improved. Most transactions on Tuesday were at parity with the SMM price. On Tuesday, SMM A00 aluminum was reported at 20,510 yuan/mt, an increase of 40 yuan/mt from the previous trading day, with a premium of 50 yuan/mt against the 07 contract, an increase of 110 yuan/mt in the premium from the previous trading day. This was mainly due to the impact of price spread fluctuations between futures contracts as the contract rollover approached, with no significant improvement in the fundamental supply and demand situation. Trading in the central China market improved on Tuesday compared to the previous day, coupled with a decrease in the supply of aluminum scrap from suppliers, which stabilized spot market prices. On Tuesday, the market saw transactions for SMM central China aluminum at a price spread ranging from a 10 yuan/mt discount to parity with the benchmark, while the price spread between Henan and Shanghai remained at 140 yuan/mt, and a 90 yuan/mt discount to the 2507 futures contract.

Secondary aluminum raw materials: On Tuesday, the spot price of primary aluminum increased slightly by 40 yuan/mt from the previous trading day. SMM A00 aluminum closed at 20,510 yuan/mt, and the aluminum scrap market generally saw price increases. Currently in the traditional off-season, downstream scrap utilization enterprises are experiencing weak order releases, with procurement mainly driven by immediate needs. On Tuesday, the centralized quoted price for baled UBC aluminum scrap was 15,200-15,700 yuan/mt (tax-exclusive), while the centralized quoted price for shredded aluminum tense scrap was 15,900-17,400 yuan/mt (tax-exclusive). By product, baled UBC aluminum scrap prices increased by 50 yuan/mt from the previous day, generally following the increase in aluminum prices. By region, Shanghai, Jiangsu, Shandong, and other regions closely followed aluminum price movements, with price adjustments ranging from 50-100 yuan/mt. In contrast, Hunan, Guangdong, Anhui, and other regions lagged behind aluminum price movements, with quoted prices remaining unchanged from the previous 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. It is expected that the aluminum scrap market will continue to fluctuate at highs this week, with product differentiation and regional differences persisting. Shredded aluminum tense scrap is expected to maintain price resilience due to strong supply constraints, with prices likely to fluctuate rangebound within the 15,500-17,000 yuan/mt range. Baled UBC aluminum scrap, constrained by weak off-season demand, faces significant downward pressure, with prices possibly dropping to the 15,000-15,500 yuan/mt range.

Secondary aluminum alloy: On the futures market, on Tuesday, the most-traded cast aluminum alloy 2511 futures contract opened at 19,790 yuan/mt, reaching a high of 19,830 yuan/mt and a low of 19,720 yuan/mt, before closing at 19,790 yuan/mt, down 15 yuan/mt or 0.08% from the previous trading day. Trading volume was 2,193, and open interest was 8,308, with bears reducing their positions during the day. In the spot market, on Tuesday, the SMM A00 aluminum price was reported at 20,510 yuan/mt, up 40 yuan/mt from Monday. The SMM ADC12 price remained stable at 20,000 yuan/mt. Following a significant drop in aluminum prices the previous day, prices slightly rebounded on Tuesday, with secondary aluminum market quotes generally remaining stable and the price spread between A00 and ADC12 slightly widening. Currently, demand remains persistently weak, with order volumes for secondary aluminum enterprises significantly declining compared to June and trading performance remaining sluggish. Overall, insufficient raw material supply provides strong support for secondary aluminum alloy prices, but weak demand constrains price increases. It is expected that ADC12 prices will maintain a narrow rangebound fluctuation pattern in the short term.

Summary: Domestically, the macroeconomic environment remains favorable. In the US, consumer price inflation rose to a five-month high in June, with costs for some goods increasing, indicating that tariffs are beginning to impact inflation and may lead the US Fed to adopt a wait-and-see attitude before September. Fundamentals: Domestic electrolytic aluminum operating capacity slightly decreased due to replacement projects, the proportion of liquid aluminum declined to 74.78%, and casting ingot volume increased. On the cost side, recent upward trends emerged due to rising alumina prices. On the demand side, most downstream sectors remained in a sluggish off-season atmosphere; aluminum prices rose during the off-season, leading to more pronounced demand suppression, while aluminum processing operating rates remained sluggish. Combined with the renewed social inventory buildup of domestic electrolytic aluminum ingots, SMM expects aluminum prices to consolidate at high levels in the short term, with close monitoring required for subsequent inventory and demand changes.

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

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