Peak Season Approaches with Marginal Improvement in Consumption, Aluminum Prices Supported but Face Resistance at Highs [SMM Aluminum Morning Meeting Summary]

9.1 SMM Aluminum Morning Meeting Summary

Futures: In the previous night session, the most-traded SHFE aluminum 2510 contract opened at 20,745 yuan/mt, with the highest price at 20,780 yuan/mt, the lowest at 20,680 yuan/mt, and closed at 20,725 yuan/mt, down 0.07% from the previous closing price. Trading volume was 52,000 lots, and open interest stood at 233,000 lots. The previous LME session opened at $2,607.5/mt, reached a high of $2,622/mt, a low of $2,606.5/mt, and closed at $2,619/mt.

Macro: (1) The US July core PCE price index rose 2.6% YoY, in line with expectations and the previous reading of 2.60%; MoM growth was 0.2%, matching forecasts, compared to 0.3% previously. (Bullish★) (2) NBS data showed China's August manufacturing PMI at 49.4%, up 0.1 percentage points MoM; non-manufacturing business activity index at 50.3%, up 0.2 percentage points MoM; composite PMI output index at 50.5%, up 0.3 percentage points MoM. (Bullish★)

Fundamentals: (1) August PMI data for aluminum processing sectors showed significant divergence, with aluminum plate/sheet and strip industry performing exceptionally well. Its composite PMI surged 17.1 percentage points to 60.5%, strongly re-entering expansion territory. Seasonal stockpiling commenced in downstream automotive, 3C electronics, can stock, and curtain wall panel sectors, driving MoM order growth. Previously idled casting-rolling lines gradually resumed production, lifting operating rates consecutively. (Bullish★) (2) SMM statistics indicate China's August primary aluminum production increased 1.22% YoY and 0.33% MoM. As the transitional period between off-peak and peak seasons, some regions reported early signs of demand recovery. The proportion of liquid aluminum at domestic smelters rose 1.3 percentage points MoM to 75.07%. Calculated aluminum ingot output decreased 10.38% YoY and 4.68% MoM to approximately 930,600 mt. (Bullish★) (3) SMM data shows mainstream consumption area aluminum ingot inventories totaled 623,000 mt on September 1, up 7,000 mt from Monday and 3,000 mt WoW. (Bearish★)

Primary aluminum market: Last Friday's SHFE aluminum session saw range-bound trading centered around 20,750 yuan/mt. In east China, downstream just-in-time procurement sentiment remained moderate, with purchasing enthusiasm rebounding from previous days though high prices still capped buying interest. Downstream enterprises showed limited restocking willingness, maintaining just-in-time procurement. Actual transactions occurred at discounts of 10 yuan/mt to parity against SMM's average price, with parity deals dominating. Last Friday, the east China market's sales sentiment index stood at 3.04, up 0.2 MoM, while the purchasing sentiment index reached 2.73, up 0.23 MoM. SMM A00 aluminum closed flat at 20,730 yuan/mt on Friday, maintaining a discount of 20 yuan/mt against the September contract, unchanged from the previous trading day. In the central China market, downstream purchasing activity remained robust with active trading. Actual transactions recorded a premium of 10-20 yuan/mt against SMM's central China aluminum price. The central China market's sales sentiment index was 3.00 on Friday, up 0.03 MoM, while the purchasing sentiment index edged up 0.1 MoM to 2.99. SMM central China A00 aluminum was quoted at 20,590 yuan/mt against the SHFE aluminum 2509 contract, up 20 yuan/mt from the previous session, with a discount of 160 yuan/mt against the September contract, also up 20 yuan/mt.

Recycled aluminum raw materials: Spot primary aluminum prices held steady on Friday, with SMM A00 aluminum closing unchanged at 20,730 yuan/mt. Aluminum scrap prices remained generally stable. As the traditional peak season approaches, some downstream scrap utilization enterprises saw order recovery. However, tight supply continued to dominate the scrap market, keeping purchasing prices elevated. Baled UBC scrap was mainly offered at 15,550-16,050 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) traded at 17,100-17,600 yuan/mt (ex-tax), both flat WoW. Aluminum scrap prices are expected to hover at highs this week amid intensifying supply-demand tug-of-war. From a macro perspective, the ongoing nationwide crackdown on illegal tax rebates will profoundly impact the cost structure of the secondary aluminum industry. During the policy transition period, downstream scrap users may further bargain down purchasing prices to offset potential tax cost increases, exacerbating downside risks for scrap prices. Nevertheless, tight supply conditions, particularly for shredded aluminum tense scrap, will likely sustain suppliers' pricing power. SMM expects shredded aluminum tense scrap (priced based on aluminum content) to trade within 17,100-17,600 yuan/mt (ex-tax), while baled UBC prices may fluctuate between 15,500-16,000 yuan/mt (ex-tax) supported by rigid demand. Overall, the market should closely monitor policy implementation and the strength of September peak season demand recovery, as price trends will depend on the interplay between cost transmission and supply tightness.

Secondary aluminum alloy: In futures trading, the most-traded cast aluminum alloy 2511 contract opened at 20,370 yuan/mt on Friday, hitting a high of 20,420 yuan/mt and a low of 20,275 yuan/mt before settling flat at 20,350 yuan/mt, with 0% change. Open interest stood at 8,348 lots with trading volume of 1,368 lots, as bulls dominated position building. In the spot market, SMM A00 aluminum held steady at 20,730 yuan/mt on Friday, while SMM ADC12 prices remained unchanged at 20,750 yuan/mt. Due to tight circulation, aluminum scrap prices remain firm, continuing to support ADC12 prices. Additionally, frequent reports of tax rebate cancellations and back taxes in multiple regions have intensified companies' willingness to pass on costs, leading to a short-term characteristic where prices are more likely to rise than fall. Demand side, as the traditional September peak season approaches, downstream procurement has only mildly recovered, and high prices have suppressed market inquiries, though actual transactions remain modest; the strengthening spot-futures price spread has improved shipments for trading firms engaging in both spot and futures market. ADC12 prices are expected to continue fluctuating upward in the short term, supported by cost pressures, low inventory, and policy factors, but slow demand recovery may limit upside room. Subsequent focus should be on policy implementation progress, the recovery of aluminum scrap supply, and marginal changes in end-use demand.

Summary: Macro front, rising expectations for US Fed interest rate cuts and China's policies boosting domestic demand have created an overall bullish atmosphere, potentially improving aluminum consumption prospects, though the transmission of domestic supportive policies to actual consumption still requires time. Fundamentals, supply side, with the commissioning of a small amount of replacement capacity, operating capacity is steadily increasing with minor growth, and production is rising slightly; the proportion of liquid aluminum is expected to rebound in September. Cost side, the weekly total cost of the aluminum industry changed minimally, with high industry profits remaining. Demand side remains the core focus for the market going forward. As the September-October peak season approaches, signs of recovery in weekly operating rates downstream became more evident last week, with operating rates for aluminum extrusion and aluminum plate/sheet, strip and foil sectors showing some increase. Entering early September, current consumption only shows marginal improvement, and effective inventory destocking still requires time to materialize. However, total inventory is not high, and some secondary aluminum enterprises in provinces like Anhui and Jiangxi have received notices of terminated tax refund policies, posing a risk of declining capacity utilization rates for scrap utilization enterprises, which provides some support for primary aluminum consumption. During the traditional September peak season, aluminum prices are generally more likely to rise than fall, but upside pressure persists. For aluminum prices to effectively break through the significant resistance level of 21,000 yuan/mt, it will require the realization of expectations for the September-October peak season in aluminum consumption, validated by subsequent domestic aluminum ingot destocking inflection points and sustained strength in downstream operating performance.

[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.]