Macro Tailwinds Dominate Aluminum Prices; Consumption Awaits Peak Season Verification [SMM Aluminum Morning Meeting Summary]

8.25 SMM Aluminum Morning Meeting Summary

Futures: During the night session on Friday, the most-traded SHFE aluminum 2510 contract opened at 20,625 yuan/mt, reached a highest price of 20,800 yuan/mt, a lowest price of 20,620 yuan/mt, and closed at 20,755 yuan/mt, up 0.41%. The trading volume was 6.6 lots, and the open interest was 244,000 lots. On Friday, LME aluminum opened at $2,593/mt, hit a high of $2,626/mt, a low of $2,581/mt, and closed at $2,622/mt.

Macro: (1) Fed Chairman Powell delivered a significant speech at the Jackson Hole Economic Symposium, stating that the risk balance seems to be changing, with increased downside risks to employment. With policy in a tightening zone, this shift in risk balance may require an adjustment in the policy stance. After Powell's speech, traders increased their bets on a September interest rate cut, fully pricing in two cuts by year-end. (Bullish ★) (2) Premier Li Qiang of the State Council chaired a regular meeting of the State Council, which heard a report on the implementation of large-scale equipment updates and trade-in policies for consumer goods. The meeting emphasized the need to crack down on fraudulent and speculative subsidy claims, ensuring that subsidy funds are used effectively. It also called for further strengthening of fiscal, tax, and financial support policies to comprehensively stimulate domestic demand. (Bullish ★)

Fundamentals: (1) According to SMM statistics, as of August 22, the total aluminum ingot inventory in Foshan, Wuxi, and Gongyi was 441,500 mt, up 4,000 mt MoM from the previous trading day. (Bearish ★) (2) On August 21, SMM data showed that the electrolytic aluminum inventory in the Shanghai Bonded Zone was 81,900 mt, and in the Guangdong Bonded Zone, it was 20,000 mt, totaling 101,900 mt, a decrease of 2,900 mt WoW. (Bullish ★) (3) SMM statistics indicate that last week, the overall operating rate of leading enterprises in the domestic aluminum downstream processing sector rose 0.5 percentage points WoW to 60.0%, with the market showing a mild recovery. (Bullish ★)

Primary Aluminum Market: On Friday morning, the center of the front-month SHFE aluminum contract experienced a slight pull back, fluctuating rangebound around 20,650 yuan/mt. In east China, market transactions remained stable over the weekend, but there was concentrated delivery of monthly contracts, putting some pressure on premiums. The market traded at a premium of 10 yuan/mt to parity against the SMM average price. On Friday, the east China market's selling sentiment index was 3.36, up 0.09, and the buying sentiment index was 3.35, up 0.03. On Friday, SMM A00 aluminum was quoted at 20,710 yuan/mt, up 30 yuan/mt from the previous trading day, at a premium of 30 yuan/mt against the 2509 contract, up 10 yuan/mt from the previous trading day. In central China, early market pressures from monthly contract deliveries, expectations of rising futures prices, and weak long-term customer purchases led to a price collapse, with premiums ranging from a discount of 10 to 30 yuan/mt. Last Friday, the sentiment index for shipments in central China was 2.67, down 0.3; the purchasing sentiment index was 2.59, down 0.24. SMM Central China A00 against SHFE aluminum 2509 contract recorded 20,580 yuan/mt, unchanged from the previous trading day, at a discount of 100 yuan/mt to the current month, down 20 yuan/mt.

Recycled aluminum raw materials: Last Friday, the spot price of primary aluminum increased by 30 yuan/mt compared to the previous trading day, with SMM A00 spot closing at 20,710 yuan/mt, and the overall aluminum scrap market prices remained flat. In the traditional off-season, downstream scrap utilization enterprises have weak order releases, and purchases are mainly based on rigid demand. Last Friday, baled UBC scrap aluminum prices were concentrated at 15,500-16,000 yuan/mt (excluding tax), and shredded aluminum tense scrap (priced based on aluminum content) prices were concentrated at 17,200-17,700 yuan/mt (excluding tax). Baled UBC prices were up 100 yuan/mt MoM, while shredded aluminum tense scrap (priced based on aluminum content) and wheel hubs (both car and motorcycle) remained unchanged MoM. It is expected that this week, aluminum scrap market prices will continue to fluctuate at highs. The tight supply situation for shredded aluminum tense scrap (priced based on aluminum content) is expected to strengthen, with prices likely to fluctuate within the range of 17,100-17,600 yuan/mt (excluding tax); baled UBC, supported by downstream can stock and other scrap utilization enterprise consumption, is expected to operate within the range of 15,500-16,000 yuan/mt (excluding tax). Recently, many regions have initiated special clean-up work for irregular tax rebates, which has caused widespread shock in the recycled aluminum market. Currently, the market is still in a transitional observation phase, and after the relevant policies are implemented, some downstream recycled aluminum producers in certain areas will face pressure due to increased tax costs. To offset these costs, companies may lower raw material procurement prices, which will increase the pressure on domestic aluminum scrap prices. However, from the supply side, the short-term supply of aluminum scrap will remain tight, giving suppliers a certain degree of pricing power. Overall, SMM believes that subsequent aluminum scrap prices will be under pressure, entering a stage of bargaining between sellers and buyers.

Secondary aluminum alloy: On the futures front, last Friday, the most-traded 2511 cast aluminum alloy futures contract opened at 20,130 yuan/mt, reached a low of 20,105 yuan/mt, a high of 20,240 yuan/mt, and finally closed at 20,175 yuan/mt, up 50 yuan/mt or 0.25% from the previous trading day. Open interest was 7,894 lots, and trading volume was 1,549 lots, with bears mainly reducing their positions during the day. In the spot market, last Friday, the SMM A00 aluminum price rose by 30 yuan/mt to 20,710 yuan/mt compared to the previous day, and the SMM ADC12 price remained stable at 20,450 yuan/mt. The continuous tight supply of aluminum scrap provides strong support for the price of secondary aluminum alloys. Additionally, recent news of the cancellation of tax rebates in Anhui and Jiangxi provinces has led to a high enthusiasm among enterprises to raise prices to cope with the rising cost pressures, making it more likely for prices to rise than fall in the short term. Demand side, end-use demand slightly recovered, downstream enterprises' procurement sentiment improved, but the rebound was limited. Short-term ADC12 prices are expected to maintain an upward fluctuating trend, with cost support and policy disruptions making prices more likely to rise than fall, but weak demand will constrain upside room. If policy impacts deepen or peak season demand is released as expected, prices may break through the current range; conversely, if policy implementation remains mild and demand continues weak, prices may continue to fluctuate at highs. Subsequent focus should be on the progress of policy implementation, the recovery of aluminum scrap supply, and marginal improvements in end-use demand.

Summary: Macro front, expectations for US Fed interest rate cuts and China's policies to boost domestic demand have created an overall favorable atmosphere, potentially improving aluminum consumption prospects. Fundamentally, supply side, with the commissioning of a small amount of replacement capacity, production increased slightly; cost side, domestic aluminum full cost was 16,718 yuan/mt, down 20 yuan/mt WoW, with industry profit remaining around 3,960 yuan/mt. Demand side remains the core focus for the market. Last week, when aluminum prices were around 20,500 yuan/mt, downstream enterprises' restocking volume increased, some companies began stockpiling for upcoming peak season orders, domestic aluminum downstream operating rates rebounded slightly, but as aluminum prices rebounded, terminal shipments declined again, and processing material enterprises' spot procurement volume significantly decreased. Overall, high aluminum prices have somewhat suppressed off-season consumption, but as the peak season approaches, expectations for order improvements have strengthened. Last week, aluminum ingot inventory pressure decreased, with inventory slightly dropping to 596,000 mt. In summary, short-term consumption only marginally improved, aluminum ingot inventory faces renewed buildup pressure, but current total inventory is not high, and some secondary aluminum enterprises in Anhui and Jiangxi provinces have received notices of termination of tax refund policies, posing a risk of declining capacity utilization rates for scrap utilization enterprises, providing some support for primary aluminum consumption. Aluminum prices, driven by macro tailwinds, are expected to gain more upside room, with prices likely to fluctuate at highs this week. Further increases will depend on the realization of peak season aluminum consumption.

[The information provided is for reference only. This article does not constitute direct investment research advice. Clients should make decisions cautiously and not use this as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]