Expectations for macro easing heat up, aluminum prices still have the potential to rebound [SMM Aluminum Morning Meeting Summary]

8.6 SMM Aluminum Morning Meeting Summary

Futures: Last night, the most-traded SHFE aluminum 2509 contract opened at 20,560 yuan/mt, with a high of 20,580 yuan/mt, a low of 20,515 yuan/mt, and closed at 20,525 yuan/mt. Trading volume was 31,000 lots, and open interest was 224,000 lots. Last night, LME aluminum opened at $2,566/mt, with a high of $2,566/mt, a low of $2,560/mt, and closed at $2,564.5/mt.

Macro: (1) US President Trump once again criticized Fed Chairman Powell for being too late in cutting interest rates, stating that he might soon announce a new Fed Chairman. He has narrowed down the potential candidates for the future Fed Chairman to four, including former Fed Governor Kevin Warsh and White House National Economic Council Director Kevin Hassett, but not including US Treasury Secretary Bessent. Trump also announced that he would "significantly" raise tariffs on India within the next 24 hours. (Bullish ★) (2) Seven departments, including the central bank, jointly issued guidelines on financial support for new-type industrialization, adhering to a strategy of differentiated measures, supporting some while controlling others, to accelerate the industrial upgrade towards high-end, intelligent, and green development, and prevent "rat race" competition. The guidelines clearly state that by 2027, a mature financial system adapted to the high-end, intelligent, and green development of the manufacturing industry will be established, promoting the coordinated use of loans, bonds, equity, and other tools. (Bullish ★)

Fundamentals: (1) According to SMM statistics, in terms of aluminum billet inventory in two domestic locations, Guangdong's aluminum billet inventory was 58,500 mt, and Wuxi's aluminum billet inventory was 34,000 mt, totaling 92,500 mt, up 500 mt MoM. (Bearish ★) (2) According to SMM statistics, on August 4, the inventory of primary aluminum ingots in domestic mainstream consumption areas was 564,000 mt, up 20,000 mt from last Thursday and up 31,000 mt from last Monday. (Bearish)

Primary Aluminum Market: Yesterday morning, the center of SHFE aluminum futures continued to climb above 20,550 yuan/mt, fluctuating at highs. In east China, intraday transactions were mainly among traders, with downstream processed material purchases remaining relatively weak. The market discount continued to widen, with transactions at a discount of 10 yuan/mt against the SMM average price, and there was an expectation for further widening of the discount. Yesterday, SMM A00 aluminum was reported at 20,520 yuan/mt, up 40 yuan/mt from the previous trading day, at a discount of 40 yuan/mt against the 08 contract, down 10 yuan/mt from the previous trading day. In the central China market, the discount was relatively large earlier, with some cargoes shipped to east China. After the aluminum price fell, downstream consumption slightly recovered, and inventory growth was relatively limited. However, the actual downstream consumption in the central China region did not show a comprehensive improvement and was still in the off-season. Intraday market transactions were mainly among traders, and the central China premium struggled to rise, with transactions against the SMM central China average price falling from a premium of 20 yuan/mt to 10 yuan/mt and then to near parity. SMM recorded the price of A00 aluminum in central China against the SHFE aluminum 2508 contract at 20,420 yuan/mt, up 50 yuan/mt from the previous trading day. The price difference between Henan and Shanghai was -100 yuan/mt, narrowing by 10 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 from the previous trading day. SMM A00 spot aluminum closed at 205,200 yuan/mt, and the overall market price of aluminum scrap declined. Amid the traditional off-season, downstream scrap utilization enterprises faced weak order releases, with procurement mainly driven by immediate needs. Yesterday, the centralized quotes for baled UBC aluminum scrap ranged from 15,250 to 15,750 yuan/mt (tax-exclusive), while those for shredded aluminum tense scrap (with water price) ranged from 16,800 to 17,300 yuan/mt (tax-exclusive price). Today, the prices of baled UBC and shredded aluminum tense scrap (with water price) collectively increased by 100 yuan/mt. Regionally, Shanghai, Jiangsu, Shandong, and other places closely followed aluminum price movements, with price adjustments ranging from 50 to 100 yuan/mt. Regarding the price difference between A00 aluminum and aluminum scrap, in Shanghai, the price difference between A00 aluminum and mechanical casting aluminum scrap increased by 13 yuan/mt MoM to 1,944 yuan/mt; in Foshan, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint increased by 40 yuan/mt MoM to 2,008 yuan/mt.

Secondary aluminum alloy: On the futures market, yesterday, the most-traded cast aluminum alloy 2511 futures contract opened at 19,915 yuan/mt. By midday, it reached a high of 19,970 yuan/mt and a low of 19,865 yuan/mt, closing at 19,960 yuan/mt, up 30 yuan/mt or 0.15% from the previous close, with bulls mainly increasing their positions. In the spot market, yesterday, the SMM A00 aluminum price rose by 40 yuan/mt from the previous day to 20,520 yuan/mt, while the SMM ADC12 price increased slightly by 50 yuan/mt to 20,050 yuan/mt. Although aluminum prices rebounded slightly yesterday, influenced by reduced new scrap output during the off-season and high temperatures suppressing dismantling volumes, aluminum scrap supply tightened, and prices quickly followed suit, increasing the cost pressure on secondary aluminum plants and strengthening their willingness to lower prices. However, on the demand side, high temperatures dragged down downstream operations, leading to reduced orders for secondary aluminum plants and sluggish market transactions, with prices struggling to rise. 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 rangebound fluctuation pattern.

Summary: On the macro front, Trump's pressure on the US Fed to cut interest rates, coupled with a potential change in the Fed's chair, has strengthened easing expectations. Additionally, the potential tariff hike on India may disrupt the global supply chain. Domestically, seven departments jointly promoted financial support for the high-end development of the manufacturing sector, aiming to establish a financial system compatible with green and intelligent manufacturing by 2027, which will be medium and long-term beneficial for the demand growth of aluminum in new energy, high-end equipment, and other fields. On the fundamental front, on the supply side, domestic operating aluminum capacity remained stable, with the proportion of liquid aluminum declining and casting ingot volumes increasing, leading to more marketable 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 plate/strip sectors remain in the off-season. Despite declining aluminum prices, processing plants' orders on hand show no significant improvement trend. Inventory-wise, aluminum ingot and billet inventories continue to accumulate, with strong expectations for further buildup. Short-term, spot premiums and discounts are in the doldrums, expected to maintain a pressured pattern. However, macro front easing expectations are heating up. After the off-season ends and policy measures take effect, aluminum prices still possess rebound momentum. Whether subsequent prices can break through depends on August's inventory trajectory during the seasonal transition period 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.]