Macro tailwinds support aluminum prices to hold up well at a high level, while inventory buildup remains a key suppressing factor [SMM Weekly Aluminum Price Review]

On the macro front, the US Consumer Price Index (CPI) rose 0.2% MoM in July, in line with expectations, and slowed by 0.1 percentage point 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. US Treasury Secretary Bessent: Optimistic about the Fed's September meeting, with a potential 50-basis-point interest rate cut; a series of consecutive interest rate cuts may follow; currently, the Fed's interest rate should be further lowered by 150 to 175 basis points. Joint Statement of the China-US Stockholm Economic and Trade Talks: Both sides agreed to take the following measures before August 12. Starting from August 12, the US will once again suspend the implementation of a 24% tariff for 90 days, while retaining the remaining 10% tariff on these goods as stipulated in the executive order. Starting from August 12, China will once again suspend the implementation of a 24% tariff for 90 days, while retaining the remaining 10% tariff on these goods. Domestically, within 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 "ballast stone" 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."

On the fundamentals side, domestic operating aluminum capacity remained at highs, with the second batch of replacement projects in Yunnan coming online and achieving production, and the industry's operating rate rebounding. In terms of the proportion of liquid aluminum, currently only a few enterprises have indicated that they will continue to increase casting ingot production in August, mainly due to weak end-use demand, a decline in processing fees for alloyed products, and related enterprises' pessimistic expectations for August demand, leading to expectations of continued production cuts, which in turn forces aluminum plants to produce casting ingots. It is expected that the proportion of liquid aluminum will continue to run at low levels, with limited downside room. On the cost side, spot alumina prices maintained a narrow range, and the real-time cost of aluminum changed minimally MoM, falling by about 11 yuan/mt from last Thursday to 16,738 yuan/mt. The real-time theoretical profit of aluminum increased by 121 yuan/mt MoM to 3,951 yuan/mt. On the demand side, as the September-October peak season approaches, downstream weekly operating rates showed signs of recovery this week. This week, the domestic aluminum extrusion industry's operating rate increased by 1 percentage point MoM to 50.5%, mainly due to new orders for automotive and PV extrusions from some enterprises. However, the construction extrusion sector remained sluggish, showing no signs of a turnaround yet, which suppressed the upside room for the operating rate. In terms of inventory, according to SMM statistics, on August 14, the domestic mainstream consumption areas' inventory of aluminum ingots was 588,000 mt, an increase of 1,000 mt from this Monday and 24,000 mt from last Thursday. Despite the relatively limited increase in arrivals in the latter half of the month, with the current volume of goods in transit to major consumption areas remaining stable, end-use consumption remains weak, and outflows from warehouses have not yet shown signs of strengthening. Therefore, under the influence of strong supply and weak demand, the inventory buildup pattern of aluminum ingots in the short term remains unchanged, and continuous inventory buildup is expected to continue until the end of August. SMM predicts that domestic aluminum ingot inventory may increase to around 600,000-650,000 mt by late August.

Macro side, mild US inflation data has solidified expectations for a September interest rate cut by the US Fed and has increased market bets on further easing policies later this year. The China-US Stockholm economic and trade talks reached a consensus to suspend tariffs for another 90 days, easing market uncertainties for the year. From a fundamental perspective, there have been relatively small changes in terms of supply, with stable to slightly increasing production of electrolytic aluminum. On the cost side, the total weekly cost of the electrolytic aluminum industry is 16,738 yuan/mt, showing minimal changes, and the industry's high profits persist. Demand side, as the September-October peak season approaches, downstream weekly operating rates have shown signs of recovery this week. However, under the influence of the off-season, it is difficult for end-user consumption of processed materials to exceed expectations. The growth rates of industries such as home appliances and PV, which had strong support in the early stage, have slowed down. Some aluminum end-user export orders have also declined, and the construction industry is still experiencing a super-seasonal decline. Amidst the off-season atmosphere, aluminum prices are fluctuating at highs, and consumption recovery remains relatively weak. Against the backdrop of still sufficient supply, the trend of continuous inventory buildup in the short term remains unchanged. Overall, the combination of macro tailwinds both domestically and overseas, along with potential risks in electrolytic aluminum supply, has kept aluminum prices holding up well. However, under the off-season consumption, the pressure of inventory buildup remains significant. After the positive sentiment is digested, the center of aluminum prices may face the risk of jumping initially and then pulling back, with the 21,000 yuan/mt threshold still under pressure. It is expected that SHFE aluminum will trade within the range of 20,400-21,000 yuan/mt next week, and LME aluminum will trade within the range of $2,570-$2,660/mt.