Strong Downstream Operations Ahead of Peak Season, Macro Sentiment Leads Aluminum Prices to Fluctuate Upward [SMM Aluminum Price Weekly Review]

Macro perspective, market sentiment leaned optimistic as Fed Chairman Jerome Powell delivered a significant speech at the Jackson Hole Economic Symposium, pointing out increased downside risks to employment and hinting at a possible shift towards a more accommodative stance. Following Powell's remarks, traders ramped up bets on a September interest rate cut by the US Fed, fully pricing in two cuts by year-end. Domestically, policies were also being rolled out in tandem; the State Council Executive Meeting emphasized the precise implementation of equipment renewal and trade-in policies, cracking down on subsidy fraud while strengthening fiscal and financial support. The National Development and Reform Commission (NDRC) focused on the formulation of the 15th Five-Year Plan, optimizing the market environment through measures such as boosting domestic demand and stabilizing employment. Both internal and external policies signaled a concerted effort to stabilize economic growth.

Fundamentally, on the supply side, operating aluminum capacity in China remained fluctuating at highs, with the second batch of replacement projects in Yunnan coming online and achieving output, leading to a slight increase in the industry’s operating rate. Cost-wise, the full cost for domestic aluminum was 16,655 yuan/mt, down 63 yuan/mt WoW, with industry profits rising 113 yuan/mt to around 4,075 yuan/mt. On the demand side, as August drew to a close, the September-October peak season was approaching, and signs of recovery in the weekly operating rates of downstream sectors became more evident. This week, the operating rate of leading aluminum extrusion enterprises in China rose 1.5 percentage points to 52%, mainly driven by industrial extrusion companies, particularly those producing PV extrusions. Construction material production continued to operate at low levels, but small and mid-sized enterprises began to see an uptick in their low and mid-end building materials exports to Africa, becoming a key factor supporting the operating rate. Other segments, such as aluminum plate/sheet, strip and foil, and aluminum wire and cable, also saw a moderate rise in their operating rates. In terms of inventory, according to SMM, on August 28, the inventory of aluminum ingots in major domestic consumption areas stood at 620,000 mt, up 4,000 mt from Monday this week and 24,000 mt MoM from the previous Monday. As we approach September, there is an expectation of a decline in overall arrivals, but some regions will face temporary production and transportation controls due to important events, which may lead to a short-term drop in related area operations next week, putting significant pressure on inventory reduction. Additionally, there are no clear signs yet of a substantial improvement in outflows from warehouses, indicating that it will take time for effective inventory reduction. Therefore, continuous inventory buildup is expected to continue into early September, with SMM forecasting that the high point of domestic aluminum ingot inventory in September could be in the range of 630,000-680,000 mt.

In summary, from the macro front, expectations for US Fed interest rate cuts and China's policy push to boost domestic demand have created a bullish atmosphere, potentially lifting aluminum consumption prospects, though the actual impact of these supportive policies on real consumption still needs time to materialize. Fundamentally, with a small amount of replacement capacity coming online, operating capacity has seen a steady and slight increase, with a modest rise in production, and there is an expectation of a rebound in the proportion of liquid aluminum in September. Cost-wise, the total cost for the domestic aluminum industry was 16,655 yuan/mt, showing little change, and the industry continues to enjoy high profits. Demand remains the core focus of the market going forward. As August draws to a close, the September-October peak season is approaching, and signs of recovery in the downstream weekly operating rates are becoming more evident this week, with increases in the operating rates for aluminum extrusion and aluminum plate/sheet, strip and foil. In early September, the current consumption end only shows marginal improvement, and it will take time for inventory destocking to be effectively realized. However, the total inventory level is not high, and some secondary aluminum enterprises in provinces such as Anhui and Jiangxi have received notices of the termination of tax rebate policies, posing a risk of decline in the capacity utilization rate of scrap utilization enterprises, which provides some support for primary aluminum consumption. During the traditional peak season in September, aluminum prices are more likely to rise than fall, but there is still pressure at the top. For aluminum prices to effectively break through the key resistance level of 21,000 yuan/mt, the expected fulfillment of the "September-October" aluminum consumption peak season needs to be realized, and further validated by the appearance of a turning point in domestic aluminum ingot destocking and the continued strengthening of downstream operating performance. SMM expects aluminum prices to hold up well in the near term, with SHFE aluminum trading in the range of 20,500-21,000 yuan/mt next week, and LME aluminum trading in the range of $2,580-2,660/mt. Subscribe to view SMM's historical spot metal prices