Social inventory continues to build up, aluminum prices are under pressure amid the off-season [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Notes on August 11

Futures: On the previous night session, the most-traded SHFE aluminum 2509 contract opened at 20,685 yuan/mt, with a high of 20,695 yuan/mt, a low of 20,625 yuan/mt, and closed at 20,665 yuan/mt. The trading volume was 30,800 lots, and the open interest was 219,000 lots. On the previous trading day, LME aluminum opened at $2,612.5/mt, with a high of $2,621.5/mt, a low of $2,605/mt, and closed at $2,615/mt.

Macro: (1) In the past year, at least a dozen provinces and cities have issued encouraging policy documents or proposed to establish or have already established state-owned asset merger and acquisition funds. Local state-owned asset merger and acquisition funds have upgraded from being "capital providers" to "industrial integrators," becoming the "cornerstone" for strengthening and supplementing local industrial chains. This has not only revitalized existing state-owned assets but also achieved the transformation of state-owned assets from "asset management" to "capital management." (Positive ★) (2) The UK, Denmark, France, Greece, and Slovenia issued a joint statement at the United Nations Security Council on the situation in Gaza, strongly condemning the Israeli government's decision to further expand military operations and calling on Israel to immediately withdraw the decision. (Positive ★)

Fundamentals: (1) During the week of August 8, SHFE aluminum futures inventory recorded 113,614 mt, a decrease of 3,913 mt or 3.33% from the previous week. In the past month, SHFE aluminum futures inventory has increased by a cumulative 10,417 mt or 10.09%. (Negative ★) (2) On August 8, LME aluminum inventory recorded 470,600 mt, an increase of 1,075 mt or 0.23% from the previous day. In the past week, LME aluminum inventory has increased by a cumulative 7,775 mt or 1.68%. In the past month, LME aluminum inventory has increased by a cumulative 79,800 mt or 20.41%. (Negative ★) (3) According to SMM statistics, on August 11, the inventory of primary aluminum ingots at major domestic consumption areas was 587,000 mt, an increase of 23,000 mt from the previous Monday and 23,000 mt from the previous Thursday. (Negative ★)

Primary Aluminum Market: On the previous trading day's morning session, the center of the front-month SHFE aluminum contract continued to fluctuate rangebound near 20,700 yuan/mt, following the weakness of the night session. In east China, as it was the weekend and the aluminum price center fell, market transactions improved slightly, with transactions mainly at parity with the SMM average price. Later, as the market slightly recovered, offers turned to premiums, but trading volume declined. On the previous trading day, SMM A00 aluminum was reported at 20,650 yuan/mt, a decrease of 40 yuan/mt from the previous trading day, with a discount of 50 yuan/mt against the 08 contract, unchanged from the previous trading day. In the central China market, downstream enterprises restocked at low prices, and market transactions improved slightly, with premiums and discounts remaining stable, with transactions mainly at parity to a discount of 10 yuan/mt against the SMM central China average price. SMM central China A00 aluminum recorded a price of 20,540 yuan/mt against the SHFE aluminum 2508 futures contract, down 40 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -110 yuan/mt, unchanged from the previous trading day, and it was trading at a discount of 160 yuan/mt against the 2508 futures contract.

Recycled aluminum raw materials: The spot price of primary aluminum fell by 40 yuan/mt from the previous trading day. SMM A00 spot aluminum closed at 20,650 yuan/mt, while aluminum scrap market prices generally increased. Currently in the traditional off-season, downstream scrap utilization enterprises are experiencing weak order releases, with purchases mainly driven by immediate needs. On the previous trading day, the centralized quotes for baled UBC aluminum scrap ranged from 15,400 to 15,900 yuan/mt (tax-excluded), while shredded aluminum tense scrap (with water content) was quoted between 17,000 and 17,500 yuan/mt (tax-excluded). Baled UBC aluminum scrap prices remained unchanged from the previous trading day, while shredded aluminum tense scrap (with water content) and automotive/motorcycle wheel hubs saw a decrease of 100 yuan/mt from the previous day. Last week, the price center of the aluminum scrap market was expected to further align with off-season levels, but due to the impact of the transitional period for policies related to secondary aluminum, it may instead push up raw material purchase prices. The tight supply of shredded aluminum tense scrap (with water content) has intensified, with prices expected to fluctuate within the range of 17,000 to 17,500 yuan/mt (tax-excluded). Baled UBC aluminum scrap remains suppressed by weak end-use demand, with prices expected to fluctuate within the range of 15,300 to 15,800 yuan/mt (tax-excluded).

Secondary aluminum alloy: On the futures market, the most-traded cast aluminum alloy 2511 futures contract opened at the lowest price of 19,980 yuan/mt on the previous trading day, reaching a high of 20,115 yuan/mt and closing at 20,110 yuan/mt, down 25 yuan/mt or 0.12% from the previous trading day. The open interest was 8,574 lots, with a trading volume of 1,125 lots, and bulls were mainly reducing their positions during the day. In the spot market, SMM A00 aluminum prices fell by 40 yuan/mt from the previous day to 20,650 yuan/mt, while SMM ADC12 prices remained stable at 20,250 yuan/mt. On the previous trading day, aluminum prices ended their consecutive gains, and secondary aluminum market quotes were mostly stable with a wait-and-see attitude. In August, the secondary aluminum market is still constrained by tight aluminum scrap supply, with enterprises facing continuous cost pressure, supporting ADC12 prices. However, weak consumption performance combined with high social inventory levels will limit price increases. It is expected that secondary aluminum alloy prices will fluctuate rangebound at the beginning of the month. In the short term, close attention should be paid to the progress of end-use demand recovery and the improvement of aluminum scrap supply.

Summary: On the macro front, expectations for US Fed interest rate cuts have risen, with macro sentiment remaining positive, providing a boost to base metals. The US has imposed tariff hikes on India, while India and Russia have signed a deepened cooperation agreement on aluminum, quietly heating up risk-averse sentiment in the market. From a fundamental perspective, there have been relatively small changes in terms of supply, with electrolytic aluminum production remaining stable with a slight increase. In terms of costs, the total weekly cost of the electrolytic aluminum industry was 16,738 yuan/mt, showing minimal changes, and the industry's high profits persist. Key points: Demand side, consumption from end-users to processed products remained weak amid off-season impacts. Growth in previously strong supporting industries like home appliances and PV slowed down, while some aluminum export orders also declined. The construction sector continued to exhibit worse-than-seasonal contraction. Social inventory of aluminum has breached the 550,000 mt threshold. Although uneven arrivals caused temporary inventory data fluctuations last week, high aluminum prices during the off-season may further dampen consumption, with the short-term inventory buildup trend remaining unchanged. Overall, macro tailwinds coupled with potential aluminum supply risks drove prices to rebound to elevated levels. However, substantial inventory buildup pressure persists during the consumption off-season. After favorable sentiment is digested, the price center of aluminum is expected to pull back, with the 21,000 yuan/mt level remaining under pressure. Similarly, most processors showed higher acceptance for prices below 20,500 yuan/mt, where just-in-time procurement capacity has been partially validated.

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