US CPI data boosts macro sentiment, while weak consumption and inventory buildup become suppressing factors [SMM Aluminum Morning Meeting Summary]

SMM Aluminum Morning Meeting Notes on August 13

Futures: On Tuesday night session, the most-traded SHFE aluminum 2509 contract opened at 20,770 yuan/mt, with a high of 20,820 yuan/mt, a low of 20,755 yuan/mt, and closed at 20,800 yuan/mt. Trading volume was 32,700 lots, and open interest was 216,000 lots. On Tuesday, LME aluminum opened at $2,582/mt, with a high of $2,631/mt, a low of $2,582/mt, and closed at $2,622.5/mt.

Macro: (1) Joint Statement on the China-US Stockholm Economic and Trade Talks: Both sides agreed to take the following measures before August 12. The US will once again suspend the implementation of 24% tariffs for 90 days starting from August 12, while retaining the remaining 10% tariffs on these goods as stipulated in the executive order. China will also once again suspend the implementation of 24% tariffs for 90 days starting from August 12, while retaining the remaining 10% tariffs on these goods. (Bullish ★) (2) The US Consumer Price Index (CPI) for July rose by 0.2% MoM, in line with expectations, and slowed by 0.1 percentage points from the previous month. The YoY increase remained at 2.7%, while the market had originally expected it to rise to 2.8%, ending the rebound momentum of the past two months. (Bullish ★)

Fundamentals: (1) On August 12, LME aluminum inventory was recorded at 477,100 mt, an increase of 1,250 mt or 0.26% from the previous day. In the most recent week, LME aluminum inventory increased by a cumulative 11,100 mt or 2.38%. In the most recent month, LME aluminum inventory increased by a cumulative 76,800 mt or 19.19%. (Bearish ★) (2) According to SMM's domestic three-region aluminum ingot inventory data, on August 12, domestic primary aluminum ingot inventory was 432,500 mt, an inventory buildup of 4,500 mt from the previous trading day. (Bearish ★)

Primary Aluminum Market: On Tuesday morning, the center of SHFE aluminum futures maintained a fluctuating trend. The spot market showed a strengthening trend on Tuesday, mainly supported by changes in the price spread structure between futures contracts and the fact that some sellers were short of volume as long-term contracts with pricing near expiration ended, leading to strong purchase demand in the market. Specifically, in east China, in the early morning spot market, sellers mainly quoted at SMM+10 and +20, with subsequent transactions mainly at SMM+10. As the first trading session progressed, more transactions were seen at SMM+20. On Tuesday, the purchase sentiment for electrolytic aluminum in east China was 3.02, and the selling sentiment was 2.85 (historical data can be accessed through the database). On Tuesday, SMM A00 aluminum was reported at 20,640 yuan/mt, up 10 yuan/mt from the previous trading day, with a discount of 30 yuan/mt against the 2508 contract, narrowing by 20 yuan/mt from the previous trading day. In the central China market, parity transactions were the mainstream before the market opened, with more +10 self pick-up offers now, but transactions were generally average. The market's reluctance to budge on prices still exists, driving the price spread between central China and Shanghai to continue narrowing to 100 yuan/mt. On Tuesday, SMM central China was reported at 20,540 yuan/mt, with a discount of 130 yuan/mt against the 2508 contract. On Tuesday, the purchasing sentiment for primary aluminum in central China was 2.94, while the selling sentiment was 3.06 (historical data can be accessed through the database).

Recycled aluminum raw materials: On Tuesday, the spot price of primary aluminum increased by 10 yuan/mt compared to the previous trading day. SMM A00 aluminum closed at 20,640 yuan/mt, and the overall aluminum scrap market prices remained stable. Currently in the traditional off-season, downstream scrap utilization enterprises are experiencing weak order releases, with purchases primarily driven by immediate needs. On Tuesday, the centralized quotes for baled UBC aluminum scrap ranged from 15,450 to 15,950 yuan/mt (tax not included), while the centralized quotes for shredded aluminum tense scrap (with water content) ranged from 17,000 to 17,500 yuan/mt (tax not included). Baled UBC aluminum scrap prices increased by 100 yuan/mt compared to the previous day, while shredded aluminum tense scrap (with water content) and automotive/motorcycle wheel hub prices remained stable MoM. This week, the price center of the aluminum scrap market was expected to further align with off-season levels. However, due to the impact of the transitional period for policies related to secondary aluminum, it may push up raw material purchase prices. The tight supply of shredded aluminum tense scrap (with water content) resources has intensified, with the operating range expected to fluctuate between 17,000 and 17,500 yuan/mt (tax not included). Baled UBC aluminum scrap remains suppressed by weak end-use demand, with an operating range of 15,300 to 15,800 yuan/mt (tax not included).

Secondary aluminum alloy: On the futures market, on Tuesday, the most-traded cast aluminum alloy 2511 futures contract opened at 20,090 yuan/mt, reaching a high of 20,160 yuan/mt and a low of 20,020 yuan/mt, before closing at 20,140 yuan/mt, up 5 yuan/mt or 0.02% from the previous trading day. The open interest was 8,616 lots, and the trading volume was 1,005 lots, with bulls primarily increasing their positions during the day. In the spot market, on Tuesday, the SMM A00 aluminum price increased slightly by 10 yuan/mt from the previous day to 20,640 yuan/mt, while the SMM ADC12 price remained stable at 20,250 yuan/mt. On Tuesday, aluminum prices rebounded slightly, and the quotes in the secondary aluminum market remained largely stable. In August, the secondary aluminum market is still constrained by tight aluminum scrap supply, with enterprises facing continuous cost pressure, supporting the ADC12 price. However, the lack of significant improvement in consumption will limit the price increase space. It is expected that secondary aluminum alloy prices will fluctuate rangebound at the beginning of the month. In the short term, it is necessary to closely monitor the progress of end-use demand recovery and the improvement of aluminum scrap supply.

Summary: From a macro perspective, the US July CPI data and related market reactions, mainly through the weakening of the US dollar triggered by interest rate cut expectations and the impact on production costs, have exerted a certain upward driving force on aluminum prices. From a fundamental perspective, there have been relatively small changes in terms of supply, with the operating production of primary aluminum showing a slight increase amid stability. In terms of costs, the total weekly cost of the primary aluminum industry was 16,738 yuan/mt, with minimal changes, and the industry's high profits persisted. The key focus is on demand, which is currently weakening under the influence of the off-season, with consumption from terminals to processed materials remaining sluggish. The growth rates of industries that previously provided strong support, such as home appliances and PV, have slowed down. Some aluminum end-use export orders have also declined, and the construction industry is still experiencing a super-seasonal decline. The aluminum social inventory has breached the 550,000 mt mark. Although uneven arrivals caused periodic inventory data fluctuations last week, high aluminum prices amid the off-season atmosphere may further dampen consumption, with the short-term inventory buildup trend remaining unchanged. Overall, macro tailwinds coupled with potential aluminum supply risks drove aluminum prices to rebound to high levels. However, inventory buildup pressure remains significant during the consumption off-season. After the positive sentiment is digested, the price center of aluminum is expected to pull back, with the 21,000 yuan/mt mark still under pressure.

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