Macro Tailwinds and Inventory Accumulation Clash Aluminum Prices Move Sideways Awaiting Consumption Guidance [SMM Aluminum Morning Meeting Summary]

8.28 SMM Aluminum Morning Meeting Summary

Futures: The most-traded SHFE aluminum 2510 contract opened at 20,735 yuan/mt during the night session, with a highest price of 20,745 yuan/mt, a lowest price of 20,660 yuan/mt, and closed at 20,680 yuan/mt. Trading volume was 7.5 lots, and open interest was 252,000 lots. LME opened at 2,603 yuan/mt, with a highest price of 2,604.5 yuan/mt, a lowest price of 2,599.5 yuan/mt, and closed at 2,603.5 yuan/mt.

Macro: (1) Data from the China Council for the Promotion of International Trade showed that the global trade friction index in June was 92, at a medium-high level. Due to factors such as the US extending the suspension of reciprocal tariffs, global trade frictions continued to ease, with the amount involved in global trade friction measures down 14.7% YoY and 13.7% MoM. (Bullish ★) (2) NBS data showed that in July, profits of industrial enterprises above designated size fell 1.5% YoY, narrowing by 2.8 percentage points from June, marking two consecutive months of narrowing. High-tech manufacturing profits turned from a 0.9% decline in June to an 18.9% increase, boosting the profit growth rate of all industrial enterprises above designated size by 2.9 percentage points, playing a leading role. (Bullish ★) (3) John Williams, President of the New York Fed, stated that it would be appropriate to lower interest rates at the right time. He maintained a moderately restrictive stance on policy, noting that if the neutral rate is 1% or slightly lower, the current position is in the restrictive zone. He also expressed considerable optimism about the economic situation. (Bullish ★)

Fundamentals: (1) According to SMM statistics, on August 27, aluminum ingot inventory in Guangdong was 191,500 mt; in Wuxi, 189,500 mt; in Gongyi, 85,500 mt. The total inventory across the three locations was 466,500 mt, up 3,000 mt from the previous period. (Bearish ★) (2) SMM statistics also showed that domestic aluminum billet inventories in two regions were 61,500 mt in Guangdong and 31,500 mt in Wuxi, totaling 93,000 mt, down 500 mt from the previous period. (Bullish ★)

Primary Aluminum Market: During the first trading session of the morning, the front-month SHFE aluminum contract mainly fluctuated, with the price center still hovering around 20,880 yuan/mt. In the second trading session, the price center shifted to around 20,850 yuan/mt, with the absolute price higher than the previous trading day. In east China, the futures absolute price strengthened, and suppliers were eager to sell, but downstream purchasing sentiment was poor, and the actual transactions were mainly at a discount of 20 yuan/mt against the SMM average price, with some deals at a discount of 10 yuan/mt and 30 yuan/mt. The selling sentiment index in the east China market was 2.79, down 0.09 MoM; the buying sentiment index was 2.32, down 0.13 MoM. Yesterday, SMM A00 aluminum was reported at 20,840 yuan/mt, up by 60 yuan/mt from the previous trading day, trading at a discount of 20 yuan/mt against the September contract, down by 20 yuan/mt from the previous trading day. In the central China market, due to the high absolute price of aluminum, downstream enterprises remained quiet, with weak buying sentiment. However, the high absolute price stimulated the seller's willingness to ship goods. In terms of demand, there was only a small amount of hedging buying in the market, with actual transactions trading at a discount of 20-30 yuan/mt against the SMM central China aluminum price. Yesterday, the shipping sentiment index in the central China market was 2.44, down by 0.03 MoM; the purchasing sentiment index was 2.11, down by 0.04 MoM. SMM central China A00 aluminum closed at 20,660 yuan/mt against the SHFE aluminum 2509 contract, up by 40 yuan/mt from the previous trading day, trading at a discount of 200 yuan/mt against the September contract, down by 40 yuan/mt.

Recycled aluminum raw materials: Yesterday, the spot primary aluminum price rose by 60 yuan/mt from the previous trading day, with SMM A00 spot aluminum closing at 20,840 yuan/mt, and the overall aluminum scrap market prices following the rise. As the traditional peak season approaches, orders for some downstream scrap utilization enterprises have recovered, yet the tight supply in the aluminum scrap market remains the main theme, with procurement prices remaining high. Yesterday, the concentrated quotation for baled UBC aluminum scrap ranged from 15,600-16,100 yuan/mt (tax excluded), while the concentrated quotation for shredded aluminum tense scrap (priced based on aluminum content) ranged from 17,300-17,800 yuan/mt (tax-excluded price). Baled UBC rose by 50 yuan/mt MoM, while shredded aluminum tense scrap (priced based on aluminum content) and wheel hubs (for both cars and motorcycles) remained unchanged MoM. In Jiangxi and Anhui, the prices of aluminum tense scrap remained stable temporarily yesterday, while in Hubei, all aluminum scrap prices rose by 100 yuan/mt yesterday. It is expected that the aluminum scrap market prices will continue to fluctuate at highs this week. The tight supply of shredded aluminum tense scrap (priced based on aluminum content) is expected to intensify, with prices likely to fluctuate within the range of 17,100-17,600 yuan/mt (tax excluded); baled UBC, supported by downstream can stock consumption and other scrap utilization enterprises, is expected to fluctuate within the range of 15,500-16,000 yuan/mt (tax excluded).

Secondary aluminum alloy: On the futures market, the most-traded cast aluminum alloy 2511 contract opened at 20,320 yuan/mt yesterday, reaching a high of 20,325 yuan/mt and a low of 20,260 yuan/mt, before closing at 20,265 yuan/mt, down by 65 yuan/mt or 0.32% from the previous trading day. The open interest stood at 8,128 lots, with a trading volume of 1,557 lots, as bulls mainly reduced their positions during the day. In the spot market, the SMM A00 aluminum price remained stable at 20,780 yuan/mt from the previous day, while the SMM ADC12 price held steady at 20,550 yuan/mt. Currently, the supply of aluminum scrap remains tight, providing strong support for secondary aluminum alloy prices. Additionally, recent news of tax refund cancellations and tax supplements in multiple regions has fueled enterprises' enthusiasm for raising prices to cope with cost pressures, making prices more likely to rise than fall in the short term. In terms of demand, as the traditional "September peak season" approaches, downstream purchasing sentiment has mildly recovered, but the strength of the recovery remains insufficient. In the short term, the price of ADC12 is expected to maintain a fluctuating upward trend, with cost support and policy disruptions jointly driving prices higher. However, insufficient demand may constrain the 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 to be weak, prices may continue to consolidate at high levels. Subsequent focus should be placed on the progress of policy document implementation, the recovery of aluminum scrap supply, and the marginal improvement in end-use demand.

Summary: On the recent macro front, global economic and trade frictions have continued to ease, while domestic industrial enterprise profits have continued to recover, particularly with significant improvements in high-tech manufacturing profits, providing support for aluminum semis demand expectations. Overseas interest rate cut expectations have also been favorable for risk asset preferences. Demand remains the core focus for the market going forward, with some enterprises already beginning to stockpile inventory in anticipation of improved orders during the subsequent peak season. Domestic aluminum downstream operating rates have rebounded slightly, but as aluminum prices have rebounded, terminal shipments have declined again, and procurement volumes of spot aluminum semis by processing enterprises have significantly decreased. In terms of inventory, the social inventory of aluminum ingots in mainstream consumption areas recorded 466,500 mt on Wednesday, up 3,000 mt MoM. The inventory inflection point has not yet been reached, with inventory buildup continuing. Futures have strengthened, and the absolute price of A00 aluminum remains high, resulting in weak downstream procurement sentiment and pressure on spot premiums. Overall, consumption resilience persists against a backdrop of low inventory, with macro sentiment recovery and industrial policy expectations serving as the primary drivers for aluminum prices. It is anticipated that aluminum prices will predominantly move sideways within a high range this week, with a focus on the subsequent strength of consumption realization and overseas monetary policy developments.

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