Favourable macro front and overseas risk hedging, with short-term aluminium prices mainly fluctuating [SMM Aluminium Morning Meeting Summary]

7.18 SMM Aluminum Morning Meeting Summary

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminum 2509 contract opened at 20,400 yuan/mt, with a high of 20,545 yuan/mt, a low of 20,380 yuan/mt, and closed at 20,520 yuan/mt. Trading volume was 58,900 lots, and open interest was 274,000 lots. On the previous trading day, LME aluminum opened at $2,573.5/mt, with a high of $2,590/mt, a low of $2,558/mt, and closed at $2,589/mt.

Macro: (1) US President Trump stated that the US might implement tariff rates on Japan as previously communicated in a letter and might soon reach a trade agreement with India. Trump recently sent a letter to Japanese leaders, indicating that a 25% tariff would be imposed on imports from Japan starting August 1. (Bullish ★) (2) Ministry of Finance and State Taxation Administration: Released the "Announcement on Adjusting the Consumption Tax Policy for Ultra-luxury Cars," adjusting the scope of ultra-luxury car taxation to "passenger vehicles and medium-sized and light commercial buses of various power types with a retail price of 900,000 yuan (excluding VAT) or above." For ultra-luxury cars without cylinder capacity, such as pure electric and fuel cell vehicles, consumption tax will only be levied at the retail stage. (Bullish ★) (3) Initial jobless claims in the US decreased last week, suggesting stable employment growth in July. Retail sales data for June was stronger than expected, with a 0.6% increase, although part of the gain may reflect tariff-driven price increases. (Bullish ★)

Fundamentals: (1) Although production cuts by aluminum billet manufacturers have alleviated the arrival pressure on the supply side, the current restocking driven by immediate demand is more of a short-term boost. The main theme of the downstream off-season has not changed, so from a long-term perspective, aluminum billet inventory will continue to build up, and the overall trend has not significantly changed. SMM expects aluminum billet inventory to range between 150,000-180,000 mt next week. (Bearish ★) (2) This week, the operating rate of the domestic aluminum extrusion industry increased by 1 percentage point MoM to 50.5%. The comprehensive operating rate of sampled enterprises increased slightly, mainly due to new automotive extrusion orders from some enterprises. (Bullish ★)

Primary Aluminum Market: On Thursday, during the first trading session of SHFE aluminum, prices fluctuated, with the center of aluminum prices moving slightly higher. The market trading atmosphere improved, and on Thursday, many regions saw transactions at a premium against the online price, mainly due to slightly improved purchase willingness from the downstream and destocking in social inventory, reducing shipments and supporting price increases. Specifically, in east China, the market still offered at +10 against the SMM average price in the morning, with slightly improved purchase willingness from the downstream. Most transactions on Thursday were at SMM+10. On Thursday, SMM A00 aluminum was reported at 20,570 yuan/mt, up 50 yuan/mt from the previous trading day, with a premium of 100 against the 2508 contract, up 10 yuan/mt from the previous trading day. In the central China market on Thursday morning, transactions were mainly concluded at SMM central China +10. SMM learned that some downstream production lines in the central region that had earlier implemented production cuts have gradually resumed operations. However, as demand has yet to show significant improvement, the overall increase in raw material procurement remains limited. The price spread between Henan and Shanghai held steady at 130 yuan/mt, with a discount of 30 yuan/mt to the 2508 contract.

Recycled aluminum raw materials: On Thursday, spot primary aluminum prices rose slightly by 50 yuan/mt compared to the previous trading day, with SMM A00 spot aluminum closing at 20,570 yuan/mt. The aluminum scrap market remained flat overall. Amid the traditional off-season, downstream scrap utilization enterprises saw sluggish order releases, with procurement mainly driven by rigid demand. On Thursday, baled UBC scrap was quoted at 15,200-15,700 yuan/mt (excluding tax), while shredded aluminum tense scrap was quoted at 15,900-17,400 yuan/mt (excluding tax). According to feedback from secondary aluminum enterprises, secondary aluminum alloy prices remain depressed. Although scrap recycling poses challenges, constrained by weak operations, upside room for prices is also limited. This week, the aluminum scrap market is expected to continue hovering at highs, with product differentiation and regional disparities persisting. Shredded aluminum tense scrap is strongly supported by tight supply, and its price resilience is expected to hold, with fluctuations likely rangebound at 15,500-17,000 yuan/mt. Baled UBC scrap faces significant downward pressure due to weak off-season demand, with prices potentially dipping to 15,000-15,500 yuan/mt.

Secondary aluminum alloy: On Thursday, SMM A00 aluminum prices rose slightly by 50 yuan/mt from the previous day to 20,570 yuan/mt, while SMM ADC12 prices remained stable at 20,000 yuan/mt. After Monday's sharp decline, aluminum prices have rebounded slightly for three consecutive days since Tuesday, with a cumulative increase of 100 yuan/mt. However, the secondary aluminum market lacks upward momentum, and prices continue to hold steady. Current demand remains sluggish, with secondary aluminum enterprises reporting lower orders compared to June and weak transaction performance. Overall, undersupply of raw materials provides strong support for secondary aluminum alloy prices, but weak demand constrains further upside. In the short term, ADC12 prices are expected to fluctuate rangebound.

Summary: Macro-wise, the domestic favorable sentiment persists. Overseas markets are currently grappling with tariff negotiations and personnel change rumors, leading to fluctuating risk appetite. On the fundamentals, capacity replacement policies are accelerating the commissioning of Yunnan hydropower aluminum projects. However, as the industry is in the off-season, the release of new supply will further exacerbate the supply-demand imbalance, putting pressure on aluminum prices. Cost side, the alumina spot market expects stronger delivery and warehousing, causing futures prices to retreat from earlier gains. However, spot market liquidity remains tight, and spot prices are slow to follow the decline. Thus, alumina cost support for aluminum has not significantly weakened, with limited short-term impact on aluminum costs. Demand side, as the off-season deepens, aluminum semis producers saw weak consumption, and the proportion of liquid aluminum pulled back from highs. Coupled with adjustments in aluminum shipment pace (such as shipment slowdown potentially delaying inventory buildup speed temporarily), short-term inventory fluctuations occurred. However, against the off-season backdrop, inventory buildup remains the dominant trend, with strong expectations for further accumulation. Overall, SMM expects aluminum prices to show a volatile pattern in the short term.

[The information provided is for reference only. This article does not constitute direct investment research advice. Clients should make decisions prudently and not use it to replace independent judgment. Any decisions made by clients are unrelated to SMM.]