Macro and Fundamentals Intertwined, Aluminum Prices Hold Up Well in Short Term [SMM Aluminum Morning Meeting Summary]

8.18 SMM Aluminum Morning Meeting Summary

Futures: In the previous trading night session, the most-traded SHFE aluminum 2509 contract opened at 206,950 yuan/mt, reached a high of 207,000 yuan/mt, a low of 206,200 yuan/mt, and closed at 206,600 yuan/mt, down 0.53% from the previous close. LME aluminum opened at $2,621.5/mt, hit a high of $2,631.5/mt, a low of $2,592.5/mt, and closed at $2,603/mt, down 0.80%.

Macro: (1) The central bank's Q2 2025 monetary policy report emphasized the continuation of moderately loose policies, with the core goal of promoting reasonable price recovery and supply-demand balance, stimulating effective demand through supply-side reforms. (Bullish ★) (2) Recently, the US Trump administration announced an expansion of the 50% tariff on steel and aluminum imports, including hundreds of derivative products in the additional tariff list. The expanded tariff list will take effect on August 18. (Bearish ★) (3) According to the Ministry of Foreign Affairs' official website, the spokesperson announced that from August 18 to 20, Wang Yi, member of the Political Bureau of the CPC Central Committee, Minister of Foreign Affairs, and Special Representative of China for the China-India Boundary Question, will visit India at the invitation and hold the 24th meeting of the special representatives on the China-India boundary question. (Neutral)

Fundamentals: (1) According to SMM statistics, on August 18, domestic primary aluminum inventory was 607,000 mt, up 19,000 mt WoW, and up 20,000 mt WoW. (Bearish ★) (2) Last week, the operating rate of the domestic aluminum extrusion industry increased by 1 percentage point MoM to 50.5%. The slight increase in the overall operating rate of sample enterprises was mainly due to some companies receiving new orders for automotive and PV extrusions. (Bullish ★)

Primary Aluminum Market: In the previous trading day, the center of SHFE aluminum fluctuated. The spot premiums and discounts in Shanghai and Henan changed frequently and gradually weakened. Specifically, in east China, the early morning market saw sellers quoting SMM+10, followed by transactions at parity and -10. The market transactions were less active than the early part of last week, with more selling and pressure on prices. The purchasing sentiment in east China for electrolytic aluminum was 2.77, and the selling sentiment was 2.90 (historical data can be queried in the database). SMM A00 aluminum was quoted at 207,100 yuan/mt, unchanged from the previous trading day, on par with the 2508 contract, with the spread widening by -10 yuan/mt. In the central China market, transactions were moderate, and the spot premiums and discounts also showed a weakening trend, with actual transactions concentrated at a discount of 10 yuan/mt to SMM central China. The price difference between Henan and Shanghai remained stable at 120 yuan/mt. SMM central China was quoted at 205,900 yuan/mt, at a discount of 120 yuan/mt to the 2508 contract. In the previous trading day, the purchasing sentiment for aluminum in central China was 2.66, and the selling sentiment was 2.73 (historical data can be queried by logging into the database). Recycled aluminum raw materials: The spot primary aluminum price remained stable compared to the previous trading day, with SMM A00 spot closing at 20,710 yuan/mt. The overall aluminum scrap market prices were steady. In the current traditional off-season, downstream scrap utilization enterprises showed weak order releases, with purchases mainly driven by rigid demand. In the previous trading day, baled UBC scrap aluminum was concentratedly quoted at 15,500-16,000 yuan/mt (excluding tax), and shredded aluminum tense scrap (priced based on aluminum content) was concentratedly quoted at 17,100-17,600 yuan/mt (excluding tax). Baled UBC, shredded aluminum tense scrap (priced based on aluminum content), and auto and motorcycle wheel hubs remained flat compared to the previous trading day. It is expected that the price center of the aluminum scrap market will further shift upward this week. Affected by the transitional period of related policies on recycled aluminum, the cost of raw material purchases is likely to rise, and the tight supply situation of shredded aluminum tense scrap (priced based on aluminum content) will intensify, with the operating range fluctuating between 17,100-17,600 yuan/mt (excluding tax); supported by the consumption from downstream can stock enterprises, baled UBC is expected to operate within the range of 15,500-16,000 yuan/mt (excluding tax).

Secondary aluminum alloy: On the futures side, the most-traded cast aluminum alloy futures contract 2511 opened at the lowest point of 20,115 yuan/mt, reached a high of 20,225 yuan/mt, and finally closed at 20,165 yuan/mt, up 25 yuan/mt or 0.12% from the previous trading day. Open interest stood at 8,161 lots, with a trading volume of 1,392 lots, mainly characterized by bears reducing their positions during the day. In the spot market, the SMM A00 aluminum price remained unchanged at 20,710 yuan/mt compared to the previous day, and the SMM ADC12 price held steady at 20,350 yuan/mt. With stable aluminum prices in the previous trading day, there was insufficient sentiment for price adjustments in the recycled aluminum market, and prices remained stable. Recently, multiple local governments have been clearing and abolishing non-compliant fiscal rebate and subsidy policies. Affected by these policy adjustments, some recycled aluminum plants have taken measures such as production cuts or halts to observe the direction of subsequent policy implementation. Consumption-wise, the traditional off-season atmosphere persists, with no significant improvement in actual consumer demand, leading to sluggish transactions. In the short term, cost support and policy disruptions may continue to support prices fluctuating upward, but weak demand and inventory buildup pressure will limit upside room. Attention should be paid to the execution of policies and the pace of peak season demand recovery.

Summary: Overall, on the macro front, PBOC's Q2 2025 monetary policy report emphasized the continuation of moderately loose policies, focusing on price rebound and supply-demand balance; the US Trump administration announced an expansion of the 50% tariff on steel and aluminum imports. Amidst the off-season, aluminum prices fluctuated at highs, with relatively weak consumption recovery. Given the still ample supply, the trend of continued inventory buildup in the short term remains unchanged. Overall, domestic and overseas macro tailwinds coupled with potential supply risks in aluminum kept prices holding up well. However, inventory buildup pressure remained significant during the off-season. After the positive sentiment is digested, aluminum prices may face the risk of jumping initially and then pulling back. Subsequent attention should be paid to inventory and capital sentiment changes.

[Data source statement: Data other than public information is processed by SMM based on public information, market exchanges, and SMM's internal database model, for reference only and not constituting decision-making advice.]