Expectations for US Fed interest rate cuts intensify, aluminum prices hold up well [SMM Aluminum Morning Meeting Summary]

9.3 SMM Aluminum Morning Meeting Summary

Futures: In the previous trading night session, the most-traded SHFE aluminum 2510 contract opened at 20,680 yuan/mt, with a highest price of 20,865 yuan/mt, a lowest price of 20,665 yuan/mt, and closed at 20,845 yuan/mt, up 0.60% from the previous trading day's closing price. The trading volume was 60,200 lots, and the open interest was 220,000 lots. In the previous trading day, LME opened at $2,619.5/mt, with a highest price of $2,625/mt, a lowest price of $2,600/mt, and closed at $2,621.5/mt.

Macro: (1) On September 2, the Ministry of Finance and the State Taxation Administration issued the "Notice on Tax Policy for the Operation and Management of State-Owned Equity and Cash Income Transferred to Supplement the Social Security Fund." It proposed that all interest and interest-like income from loan services and financial commodity transfer income obtained by the receiving entity during the investment process using transferred state-owned equity and cash income would be exempt from VAT. (Bullish ★) (2) The central bank released the liquidity injection details for August. For central bank loans, there was a net injection of 300 billion yuan through medium-term lending facility (MLF), and a net withdrawal of 160.8 billion yuan through pledged supplementary lending (PSL). In open market operations, there was a net injection of 300 billion yuan through reverse repo operations, and no government bond transactions were conducted. (Bullish ★) (3) According to CME's "FedWatch," the probability of the US Fed maintaining the interest rate unchanged in September is 9.5%, and the probability of cutting the interest rate by 25 basis points is 90.5%. The probability of the US Fed maintaining the interest rate unchanged in October is 4.3%, the cumulative probability of cutting the interest rate by 25 basis points is 46.3%, and the cumulative probability of cutting the interest rate by 50 basis points is 49.3%. (Bullish ★)

Fundamentals: (1) On September 2, according to SMM statistics, the inventory of aluminum billet in two locations in China showed that the inventory in Guangdong was 66,500 mt, and in Wuxi it was 32,000 mt, totaling 98,500 mt, down 1,000 mt from the previous period. (Bullish ★) (2) On September 2, LME aluminum inventory recorded 479,600 mt, down 1,450 mt from the previous day, a decrease of 0.30%. Over the past week, LME aluminum inventory increased by 1,525 mt, an increase of 0.32%; over the past month, LME aluminum inventory increased by 16,800 mt, an increase of 3.63%. (Bullish ★) (3) According to SMM data, in August 2025 (31 days), China's metallurgical-grade alumina production was up 1.15% MoM and up 7.16% YoY. By the end of August, China's existing capacity of metallurgical-grade alumina was around 110.32 million mt, with the actual operating capacity up 1.15% MoM, and the operating rate was 82.6%. (Bearish ★)

Primary Aluminum Market: In the Tuesday morning session, the center of the front-month SHFE aluminum contract slightly shifted to 20,700 yuan/mt and fluctuated rangebound. In east China, the market was mainly supported by just-in-time procurement and purchases by large traders, with spot transactions at a premium of 10 yuan/mt against the SMM average price. On Tuesday, the east China market sentiment index for selling stood at 3.13, up 0.07, while the purchasing sentiment index was 2.90, up 0.06. SMM A00 aluminum closed at 20,710 yuan/mt on Tuesday, up 90 yuan/mt from the previous trading day, at a discount of 20 yuan/mt against the 2509 contract, up 10 yuan/mt from the previous session. In central China, the premium narrowed during the day as the market remained seller-dominated. Downstream enterprises faced environmental protection-related production reduction risks, keeping operating rates subdued in the short term. Transactions were at a discount of 10 yuan/mt against the SMM central China average price. On Tuesday, the central China market sentiment index for selling was 2.96, largely unchanged, while the purchasing sentiment index was 2.90, down 0.05. SMM central China A00 aluminum was quoted at 20,570 yuan/mt against the SHFE aluminum 2509 contract, up 80 yuan/mt from the previous trading day, at a discount of 160 yuan/mt against the current month contract, flat from the prior session.

Recycled aluminum raw materials: On Tuesday, spot primary aluminum prices rebounded from the previous session, with SMM A00 spot aluminum closing at 20,710 yuan/mt. Aluminum scrap prices followed the uptrend. As the traditional peak season begins, some downstream scrap utilization enterprises saw order recovery. However, tight supply remained the dominant theme in the scrap market, keeping purchase prices elevated and generally tracking aluminum price movements. On Tuesday, baled UBC was quoted at 15,500-16,000 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was quoted at 17,000-17,500 yuan/mt (ex-tax). Baled UBC rose 50 yuan/mt MoM, while shredded aluminum tense scrap (priced based on aluminum content) was flat MoM. In Jiangxi, scrap aluminum prices continued to adjust on Tuesday, with notable divergence—car wheel hubs fell 200 yuan/mt, while wrought aluminum alloy scrap rose 100 yuan/mt, reflecting initial policy impacts. In terms of price spreads, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan widened by 80 yuan/mt MoM to 2,020 yuan/mt, while the spread for mechanical casting aluminum scrap in Shanghai expanded by 90 yuan/mt MoM to 1,972 yuan/mt.

Secondary aluminum alloy: On the futures side, the most-traded cast aluminum alloy 2511 contract opened at the day’s low of 20,275 yuan/mt on Tuesday, rose to a high of 20,375 yuan/mt, and closed at 20,300 yuan/mt, up 25 yuan/mt (0.12%) from the previous close. Open interest stood at 8,140 lots, with trading volume at 1,760 lots, as bears mainly reduced positions. In the spot market, SMM A00 aluminum rose 90 yuan/mt from the previous session to 20,710 yuan/mt on Tuesday, while SMM ADC12 prices held steady at 20,750 yuan/mt. With post-September regional tax rebate policies still unclear, the secondary aluminum market remained cautious. Coupled with tight raw material supply, firm cost support kept manufacturers’ offers steady. Demand side, the approaching traditional peak season has driven a slight recovery in downstream procurement, but high prices have suppressed transaction volumes, with actual demand remaining mediocre. ADC12 prices are expected to continue fluctuating upward in the short term, supported by cost, low inventory, and policy pressures, 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: On the macro front, rising expectations for US Fed interest rate cuts, coupled with China's policies boosting domestic demand, have created an overall favorable atmosphere, potentially improving the aluminum consumption outlook. However, it will take time for domestic supportive policies to translate into actual consumption. Fundamentally, on the supply side, with the commissioning of a small amount of replacement capacity, operating capacity is steadily increasing slightly, and production is growing modestly. 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, downstream weekly operating rates showed stronger signs of recovery last week, with operating rates in sectors like aluminum extrusion and aluminum plate/sheet, strip and foil all increasing to some extent. 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 about the termination of 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 peak season in September, aluminum prices are overall more likely to rise than fall, but top-side pressure remains. 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 the subsequent emergence of a turning point in domestic aluminum ingot destocking 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 to replace independent judgment. Any decisions made by clients are unrelated to SMM.]