Macro trade friction eases, but inventory pressure persists [SMM Aluminum Morning Meeting Summary]

8.5 SMM Aluminum Morning Meeting Summary

Futures: Last night, the most-traded SHFE aluminum 2509 contract opened at 20,525 yuan/mt, with a high of 20,525 yuan/mt, a low of 20,435 yuan/mt, and closed at 20,440 yuan/mt. Trading volume was 42,000 lots, and open interest was 224,000 lots. Last night, LME aluminum opened at $2,566.5/mt, with a high of $2,573.5/mt, a low of $2,565/mt, and closed at $2,570/mt.

Macro: (1) A spokesperson for the European Commission stated that the EU will suspend the implementation of tariff retaliation measures against the US, which were originally scheduled to take effect on August 7, within six months. The EU will continue to cooperate with the US to finalise a joint statement on trade. (Bullish ★) (2) San Francisco Fed President Mary Daly said that given the increasing evidence of a weakening job market and no signs of persistent tariff inflation, the timing for an interest rate cut is approaching. Daly stated that two 25-basis-point interest rate cuts this year still seem like an appropriate recalibration, and the important thing is whether to cut rates in both September and December, rather than whether the cuts will happen. (Bullish ★)

Fundamentals: (1) According to SMM statistics, during the period from July 28 to August 3, the total outflows from warehouses of aluminum billets in China were 47,500 mt, a decrease of 900 mt MoM. (Bearish ★) (2) According to SMM statistics, during the period from July 28 to August 3, the total outflows from warehouses of aluminum ingots in China were 110,700 mt, an increase of 18,200 mt MoM. (Bullish ★) (3) According to SMM statistics, on August 4, the inventory of aluminum billets in China's mainstream consumption areas was 151,000 mt, an increase of 4,000 mt from last Thursday and 3,500 mt from last Monday. (Bearish) (4) According to SMM statistics, on August 4, the inventory of primary aluminum ingots in China's mainstream consumption areas was 564,000 mt, an increase of 20,000 mt from last Thursday and 31,000 mt from last Monday. (Bearish)

Primary Aluminum Market: Yesterday morning, the center of SHFE aluminum futures first fell to around 20,400 yuan/mt, below the daily average line, fluctuating rangebound, and then gradually recovered to around 20,500 yuan/mt. Inventory buildup was evident in east China, with Wuxi's inventory increasing by 17,000 mt WoW. Under the inventory buildup, large traders purchased at a discount of 10 yuan/mt against the SMM average price, and the market trading discount continued to widen. Yesterday, SMM A00 aluminum was reported at 20,480 yuan/mt, down 40 yuan/mt from the previous trading day, with a discount of 30 yuan/mt against the 08 contract, down 10 yuan/mt from the previous trading day. In the central China market, discounts were larger in the early stage, and some cargoes were shipped to east China. After the aluminum price fell, downstream consumption slightly recovered, and inventory experienced a small destocking. In the intraday market, trading was at a premium of 10-20 yuan/mt against the SMM price. SMM central China A00 aluminum was recorded at 20,370 yuan/mt against the SHFE aluminum 2508 contract, down 20 yuan/mt from the previous trading day. The price spread between central China and Shanghai was -110 yuan/mt, narrowing by 20 yuan/mt from the previous trading day, with a discount of 140 yuan/mt against the 2508 contract.

Recycled 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 20,480 yuan/mt, while the overall aluminum scrap market prices remained stable. 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 quotes for baled UBC aluminum scrap ranged from 15,150 to 15,650 yuan/mt (tax-exclusive), while the centralized quotes for shredded aluminum tense scrap (with water price) ranged from 16,700 to 17,200 yuan/mt (tax-exclusive). Regionally, Shanghai, Jiangsu, Shandong, and other regions closely followed aluminum price movements, with price adjustments ranging from 0 to 50 yuan/mt. In Jiangxi, Anhui, Hubei, Guizhou, and other regions, price adjustments lagged behind aluminum price movements, with yesterday's quotes remaining unchanged MoM. It is expected that the price center of the aluminum scrap market this week may further return to off-season levels. The bearish expectations for primary aluminum (such as macro pressure and high inventory levels) have not dissipated, coupled with the continued weak demand during the off-season, limiting the overall upside room for aluminum scrap. However, the tight supply of raw materials still provides medium and long-term bottom support. Shredded aluminum tense scrap, supported by the supply side, has strong price resilience and is expected to fluctuate rangebound within 16,500 to 17,000 yuan/mt (tax-exclusive). Baled UBC aluminum scrap, due to weak end-use demand, faces significant downward pressure, and prices may fall to 15,000 to 15,500 yuan/mt (tax-exclusive).

Secondary aluminum alloy: On the futures market, yesterday, the most-traded cast aluminum alloy futures contract 2511 opened at 19,870 yuan/mt. By the midday close, the futures market reached a high of 19,945 yuan/mt and a low of 19,800 yuan/mt, closing at 19,895 yuan/mt, down 55 yuan/mt or 0.28% from the previous close, with bulls mainly reducing their positions. In the spot market, yesterday, the SMM A00 aluminum price fell slightly by 40 yuan/mt from the previous day to 20,480 yuan/mt, while the SMM ADC12 price remained stable at 20,000 yuan/mt. Yesterday, aluminum prices continued to pull back, with aluminum scrap temporarily maintaining firm quotes. However, silicon prices continued to fall, with the oxygen-blown #553 silicon price dropping by 250 yuan/mt from last Friday to 9,450 yuan/mt, further weakening the cost support for secondary aluminum alloys. Meanwhile, recent weak end-use consumption and reduced production due to high temperatures in some downstream sectors have led to order reductions at secondary aluminum plants and sluggish market transactions. However, the short-term supply of aluminum scrap remains tight, providing some support for prices due to high costs. Overall, cost support will continue to limit the downside room for prices, while high social inventory and persistently weak actual demand will suppress price upside. It is expected that the short-term ADC12 price will maintain a narrow and weak oscillating pattern.

Summary: On the macro front, the EU postponed tariff retaliation against the US, easing trade friction and strengthening expectations for a US Fed interest rate cut (possibly 50BP within the year), putting pressure on the US dollar and benefiting commodities. On the fundamental front, in terms of supply, domestic operating aluminum capacity remained stable, with the proportion of liquid aluminum pulling back and an increase in casting ingot volume, leading to more market-available supplies and a continuous inventory buildup in social inventory, suppressing aluminum price upside. Demand side, downstream off-season sentiment persists, spot purchasing as needed remains sluggish, spot premiums lack upward momentum. PV, NEV, and home appliance sheet sectors remain in the off-season. Despite declining aluminum prices, processing plants' orders on hand show no significant improvement trend. Inventory-wise, weekly outflows from warehouses of aluminum ingot increased by 18,200 mt, but aluminum billet outflows declined, with both ingot and billet inventories continuing to accumulate, highlighting invisible inventory pressure and off-season consumption suppression. Short-term, under the off-season, inventory buildup expectations remain strong, spot premiums and discounts are in the doldrums, with pressure likely to persist. Future price breakthroughs depend on August's seasonal transition inventory trends and consumption recovery signals.

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