Macro and Fundamentals Intertwined, Aluminum Prices Maintain a Range-Bound Pattern [SMM Aluminum Morning Meeting Summary]

8.21 SMM Aluminum Morning Meeting Summary

Futures: In the night session of the previous trading day, the most-traded SHFE aluminum 2510 contract opened at 20,570 yuan/mt, reached a high of 20,590 yuan/mt, a low of 20,535 yuan/mt, and closed at 20,565 yuan/mt, up 0.15% from the previous close. LME aluminum opened at $2,569/mt, hit a high of $2,584.5/mt, a low of $2,558/mt, and closed at $2,577/mt, with a gain of 0.37%.

Macro: (1) The latest minutes of the US Fed's July monetary policy meeting showed that most committee members believed inflation risks outweighed employment risks, and a few members stated that the current interest rate might not be far above the neutral rate. Many members pointed out that the full impact of tariffs might take some time to become apparent, and a few expected businesses to pass on the tariffs to consumers. (Neutral) (2) The August Loan Prime Rate (LPR) was announced: the over-5-year LPR was 3.5%, unchanged from last month. The 1-year LPR was 3%, also unchanged from last month. (Neutral)

Fundamentals: (1) According to SMM, on August 21, domestic aluminum inventory stood at 596,000 mt, down 11,000 mt from Monday, and up 8,000 mt WoW. (Neutral) (2) On August 20, the daily social inventory of secondary aluminum alloy ingots in Foshan, Ningbo, and Wuxi totaled 31,596 mt, an increase of 164 mt from the previous trading day, and a decrease of 16 mt from the previous Wednesday (August 13). (Neutral) (3) According to SMM, for domestic aluminum billet inventories, the stock in Guangdong was 52,500 mt, and in Wuxi, it was 33,000 mt, totaling 85,500 mt, a decline of 500 mt from the previous period. (Bullish ★)

Primary Aluminum Market: During the early morning session on Wednesday, the front-month SHFE aluminum contract continued the weakness from the night session, fluctuating rangebound around 20,500 yuan/mt. The price center continued to fall, but market sentiment in east China rebounded quickly, with active trading between traders. Transactions were made at premiums of 10-20 yuan/mt. Yesterday, the east China market's selling sentiment index was 3.33, up 0.4, and the buying sentiment index was 3.16, up 0.27. Subsequently, there is a high probability of continuous inventory buildup in east China. If aluminum prices stabilize, the upside for premiums and discounts will be limited. Yesterday, SMM A00 aluminum was quoted at 20,520 yuan/mt, down 70 yuan/mt from the previous trading day, on par with the 2509 contract, up 20 yuan/mt from the previous trading day. In the central China market, downstream buyers restocked at lower prices, and market transactions continued to improve, although there was little selling. The premium within the day continued to rise, at 10-20 yuan/mt against the SMM central China average. Yesterday, the central China market's selling sentiment index was 3.41, up 0.24, and the buying sentiment index was 3.09, up 0.05. SMM central China A00 against SHFE aluminum 2509 contract closed at 20,440 yuan/mt, down 50 yuan/mt from the previous trading day. The price difference between Henan and Shanghai narrowed by 20 yuan/mt to -80 yuan/mt, with a discount of 80 yuan/mt against the 2509 contract.

Recycled aluminum raw materials: Yesterday, the spot aluminum price increased by 70 yuan/mt compared to the previous trading day, with SMM A00 spot closing at 20,520 yuan/mt, while the overall aluminum scrap market prices declined. In the current off-season, downstream scrap utilization enterprises have shown weak order releases, with purchases mainly driven by rigid demand. Baled UBC was concentratedly quoted at 15,350-15,900 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 dropped back slightly by 50 yuan/mt MoM, while shredded aluminum tense scrap (priced based on aluminum content) and wheel hubs for cars and motorcycles remained unchanged from the previous day. In Anhui, the prices of aluminum tense scrap collectively rose by 100 yuan/mt, making the purchase of aluminum scrap increasingly difficult. In terms of the price difference between A00 aluminum and aluminum scrap, the price difference in Foshan for mixed aluminum extrusion scrap free of paint narrowed by 70 yuan/mt to 1,742 yuan/mt, and the price difference for mechanical casting aluminum scrap in Shanghai narrowed by 16 yuan/mt to 1,998 yuan/mt. It is expected that aluminum scrap prices will fluctuate at highs this week. Affected by the transitional period of relevant policies on recycled aluminum, the cost of raw material purchases is likely to rise, further tightening the supply of shredded aluminum tense scrap (priced based on aluminum content), with an operating range expected to be 17,100-17,600 yuan/mt (excluding tax). Supported by the consumption of can stock enterprises, baled UBC is expected to operate within the range of 15,500-16,000 yuan/mt (excluding tax).

Secondary aluminum alloy: Yesterday, the aluminum price pulled back slightly, with SMM ADC12 price remaining stable at 20,350 yuan/mt. Given the continuous tight supply of aluminum scrap, the decline in aluminum scrap prices has been relatively small, with high raw material costs supporting the price of secondary aluminum alloys. Additionally, recent news about the cancellation of tax rebates in Anhui and Jiangxi provinces has led companies to maintain firm quotations in response to rising cost pressures. On the demand side, the traditional off-season atmosphere continues, with actual consumption showing little improvement and mediocre performance in transactions. In the short term, cost support and policy disruptions may continue to underpin prices, but weak demand and inventory buildup pressure will limit upside room. Subsequent attention should be paid to the implementation of policies and the recovery pace of peak season demand.

Summary: From a fundamental perspective, there have been no significant changes in terms of supply, with aluminum production steadily increasing. On the demand side, although the September-October peak season is approaching, the impact of the current off-season makes it difficult for terminal to semi-finished product consumption to exceed expectations. Industries such as home appliances and PV, which previously showed strong support, are experiencing a slowdown in growth, and some aluminum end-user export orders have also declined. The construction industry remains in an ultra-seasonal downturn. In the off-season atmosphere, aluminum prices fluctuated at highs, with consumption recovery remaining relatively weak. Against the backdrop of ample supply, the short-term inventory buildup trend continued unabated. Overall, domestic and overseas macro tailwinds, coupled with potential risks in aluminum supply, kept aluminum prices holding up well. However, amid the consumption off-season, inventory buildup pressure remained significant. Once the positive sentiment is digested, the price center of aluminum 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 processed by SMM based on public information, market exchanges, and SMM's internal database model, for reference only and not constituting decision-making advice.]