Inventory Buildup Pressure Remains During Off-Season, Aluminum Prices May Hover at Highs in the Short Term [SMM Aluminum Morning Meeting Summary]

8.19 SMM Aluminum Morning Meeting Summary

Futures: In the previous trading night session, the most-traded SHFE aluminum 2510 contract opened at 20,580 yuan/mt, reached a highest price of 20,605 yuan/mt, and a lowest price of 20,545 yuan/mt, closing at 20,600 yuan/mt, up 0.02% from the previous close. LME aluminum opened at $2,602.5/mt, hit a high of $2,607/mt, and a low of $2,580.5/mt, closing at $2,588.5/mt, down 0.56% from the previous close.

Macro: (1) On August 18, Premier Li Qiang chaired the ninth plenary meeting of the State Council, emphasizing the implementation of the Party Central Committee's economic deployment decisions to consolidate the momentum of economic recovery, focusing on boosting domestic circulation, stimulating consumption, and stabilizing the real estate market, to achieve the annual targets. (Bullish ★) (2) Trump proposed promoting direct negotiations between Russia and Ukraine and preparing for a US-Russia-Ukraine trilateral meeting, advocating that talks can proceed without a ceasefire, while also indicating the possibility of sending US troops for peacekeeping and announcing arms sales to Ukraine instead of free aid. (Neutral)

Fundamentals: (1) According to SMM statistics, during 8.11-8.17, outflows from warehouses of aluminum billet in China totaled 49,000 mt, down 1,000 mt MoM. (Bearish ★) (2) As per SMM data, on August 18, the daily social inventory of secondary aluminum alloy ingots in Foshan, Ningbo, and Wuxi was 31,653 mt, an increase of 10 mt from the previous trading day, and up 308 mt WoW from the previous Monday (August 11). (Bearish ★)

Primary Aluminum Market: During the early morning session on Monday, the center of the front-month SHFE aluminum contract continued the night session's weak trend, falling to 20,550 yuan/mt and fluctuating rangebound. The decline in the center of aluminum prices led to slightly improved trading in east China, but with relatively high regional inventories, premiums were suppressed, making it difficult to recover. The market traded at a slight discount or parity to the SMM average price. Yesterday, SMM A00 aluminum closed at 20,550 yuan/mt, down 160 yuan/mt from the previous trading day, at a discount of 20 yuan/mt against the 09 contract, unchanged from the previous trading day. In the central China market, downstream buyers took advantage of lower prices to restock, improving trading, with premiums and discounts remaining stable, trading around parity to a premium of 10 yuan/mt against the SMM central China average price. SMM central China A00 aluminum recorded 20,440 yuan/mt against the SHFE aluminum 2509 contract, down -150 yuan/mt from the previous trading day, with the Henan-Shanghai price spread at -100 yuan/mt, narrowing by 10 yuan/mt from the previous trading day, and at a discount of 130 yuan/mt against the 2508 contract.

Recycled Aluminum Raw Materials: Yesterday, the spot price of primary aluminum decreased by 160 yuan/mt from the previous trading day, with SMM A00 spot closing at 20,550 yuan/mt, leading to a general decline in the aluminum scrap market. Amid the traditional off-season, orders from scrap utilization enterprises remained weak, with purchases mainly driven by essential needs. Yesterday, baled UBC scrap aluminum was concentratedly quoted at 15,400-15,900 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 prices fell by 100 yuan/mt MoM, while the prices of shredded aluminum tense scrap (priced based on aluminum content) and automotive/motorcycle wheel hubs remained unchanged MoM from yesterday. In terms of the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan narrowed by 160 yuan/mt MoM to 1,762 yuan/mt, while the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai widened by 29 yuan/mt MoM to 1,974 yuan/mt. It is expected that aluminum scrap prices will remain high this week. Affected by the transitional period of policies related to secondary aluminum, the prices of raw material purchases are expected to rise, and the tight supply of shredded aluminum tense scrap (priced based on aluminum content) will intensify, with the operating range expected to fluctuate between 17,100-17,600 yuan/mt (tax-exclusive). Baled UBC, supported by downstream can stock enterprises' consumption, will operate within the range of 15,500-16,000 yuan/mt (tax-exclusive).

Secondary aluminum alloy: On the futures market, yesterday, the most-traded cast aluminum alloy futures contract 2511 opened at the highest price of 20,250 yuan/mt, reached the lowest price of 19,950 yuan/mt, and closed at 20,090 yuan/mt, down 75 yuan/mt or 0.37% from the previous trading day. The open interest was 7,988 lots, and the trading volume was 2,389 lots, with bulls reducing their positions mainly during the day. In the spot market, SMM A00 aluminum prices fell by 160 yuan/mt from the previous day to 20,550 yuan/mt, while SMM ADC12 prices remained stable at 20,350 yuan/mt. Affected by recent policy adjustments in some regions and the tight supply of aluminum scrap, the decline in raw material costs was limited, supporting enterprises to maintain firm quotes. On the demand side, the traditional off-season atmosphere persisted, with actual consumption showing little improvement and trading performance remaining mediocre. In the short term, cost support and policy disruptions may continue to prop up prices, but weak demand combined with inventory buildup pressure will constrain upside room. Subsequent attention should be paid to the implementation of policies and the recovery pace of demand during the peak season.

Summary: The State Council meeting emphasized the need to seize key focal points to strengthen the domestic economic cycle and continuously stimulate consumption potential. Effective measures should be taken to consolidate the stabilization and recovery of the real estate market, combining urban renewal with the renovation of urban villages and dilapidated houses to release improvement-oriented demand through multiple channels. From a fundamental perspective, there have been no significant changes in terms of supply, with the operating production of aluminum remaining stable with a slight increase. On the demand side, the September-October peak season is approaching, but currently, under the influence of the off-season, it is difficult for consumption from terminals to processed materials to exceed expectations. Industries such as home appliances and PV, which had strong support in the early stage, have seen a slowdown in growth, and some aluminum terminal export orders have also declined. The construction industry is still experiencing a super-seasonal decline. Amid the off-season atmosphere, aluminum prices are running high, while consumption recovery remains relatively weak. Against the backdrop of still sufficient supply, the inventory buildup trend will continue in the short term. Overall, the combination of macro tailwinds at home and abroad and potential risks in aluminum supply will keep aluminum prices holding up well, but under the off-season consumption, the pressure of inventory buildup remains significant. After the favorable 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 level still under pressure. Subsequent attention should be paid to changes in inventory and capital sentiment.

[Data Source Statement: Except for publicly available information, other data are derived from public information, market exchanges, and processed by SMM based on its internal database model, for reference only and not constituting decision-making advice.]