The August Secondary Aluminum PMI Remained Below the 50 Mark [SMM Cast Aluminum Alloy Morning Comment]

9.1 SMM Cast Aluminum Alloy Morning Comment

Futures: The most-traded cast aluminum alloy AD2511 contract opened at the day's high of 20,350 yuan/mt on Friday night, with the highest at 20,365 yuan/mt and the lowest at 20,270 yuan/mt, finally closing at 20,325 yuan/mt, down 25 yuan/mt (0.12%) from the previous settlement. Trading volume stood at 571 lots, while open interest reached 8,297 lots, with bulls mainly reducing positions.

Basis Report: According to SMM data, the spot price of SMM ADC12 showed a theoretical premium of 460 yuan/mt against the closing price of the most-traded cast aluminum alloy contract (AD2511) at 10:15 on August 29.

Industry Dynamics: The PMI of the secondary aluminum industry rebounded 11.5 percentage points MoM to 49.5% in August, though still below the 50 mark. Demand was dominated by off-season sentiment, with some downstream enterprises concentrating summer breaks from late July to mid-August, further suppressing purchase willingness. Post mid-August demand stabilized and recovered. Delivery-brand enterprises continued fulfilling previous orders, providing some support to order books. Production showed structural divergence: large enterprises maintained relatively high operating rates, though some implemented mild production cuts due to automotive industry summer breaks; small and medium-sized enterprises generally faced pressure from both order contraction and multiple constraints: 1) persistent tightness in aluminum scrap supply hindered raw material inventory replenishment; 2) cancellation of tax rebate policies in Anhui and Jiangxi prompted proactive production cuts to avoid cost risks; 3) environmental protection inspections in Hebei and Jiangxi caused regional output reductions. Both finished product and raw material inventories remained at low levels. With the approaching September peak season, downstream demand showed mild recovery, and the industry PMI is expected to rebound above the 50 mark in September.

Aluminum Scrap: Spot primary aluminum prices were flat on Friday versus the previous trading day, with SMM A00 spot aluminum closing at 20,730 yuan/mt, while aluminum scrap market prices remained generally stable. As the traditional peak season approaches, some downstream scrap utilization enterprises saw order recovery, yet tight supply continued dominating the aluminum scrap market, keeping purchasing prices elevated. Aluminum scrap prices are expected to hover at highs this week amid intensifying tug-of-war between sellers and buyers. From a macro perspective, the ongoing special rectification of irregular tax refunds across multiple regions will profoundly impact the cost structure of the secondary aluminum industry. During the policy transition period, downstream scrap utilization enterprises may further bargain down purchasing prices to transfer potential tax cost increases, exacerbating downside risks for aluminum scrap prices. However, tight supply conditions are unlikely to ease in the short term, especially for shredded aluminum tense scrap, which will maintain suppliers' pricing power. SMM expects mainstream shredded aluminum tense scrap (priced based on aluminum content) to trade within 17,100-17,600 yuan/mt (ex-tax), while baled UBC prices will linger at 15,500-16,000 yuan/mt (ex-tax) supported by rigid demand. Overall, the market needs to closely monitor the implementation of policies and the strength of consumption recovery during the September peak season. Price trends will depend on the outcome of the interplay between cost pass-through and supply tightness.

Silicon metal: (1) Prices: Silicon metal prices were in the doldrums last week, with downstream buyers buying the dip. As of last Friday, SMM oxygen-blown #553 silicon in east China was at 9,000-9,100 yuan/mt, and #441 silicon was at 9,200-9,500 yuan/mt. (2) Production: Silicon metal production saw a significant MoM increase in August. In September, as production from previously resumed capacity is fully released throughout the month and some capacity is planned to resume production in September, secondary aluminum alloy supply is expected to increase MoM.

Overseas market: Current overseas ADC12 offers are in the range of 2,480-2,500 USD/mt. Due to rising domestic prices and the appreciation of the RMB, the immediate import loss has narrowed to around 200 yuan/mt. Local ADC12 offers in Thailand, excluding tax, are temporarily at 83-84 baht/kg.

Inventory: According to SMM statistics, on September 1, the daily social inventory of secondary aluminum alloy ingots in Foshan, Ningbo, and Wuxi totaled 33,715 mt, up 148 mt from the previous trading day and up 1,451 mt WoW from last Friday (August 22).

Summary: Last Friday, aluminum prices held steady, and most secondary aluminum market offers were flat. Due to tight circulation, aluminum scrap prices held up well, continuing to support ADC12 prices. Additionally, frequent news about the cancellation of tax rebates and back taxes in multiple regions has strengthened companies' willingness to pass on costs, leading to a short-term characteristic of prices being more likely to rise than fall. Demand side, as the traditional peak season of "September peak season" approaches, downstream procurement has only mildly recovered. High prices have suppressed market inquiry activity, but actual transactions remain moderate. The strengthening spot-futures price spread has improved the shipment situation for trading firms engaging in both spot and futures markets. ADC12 prices are expected to continue fluctuating upward in the short term, supported by cost pressures, low inventory, and policy pressures. However, slow demand recovery may limit upside room. Going forward, close attention should be paid to the progress of policy implementation, the recovery of aluminum scrap supply, and marginal changes in end-use demand.

[Data source statement: Except for public 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.]