Macro and Fundamentals in a Tug of War, SHFE Aluminum to Hover at Highs in the Short Term [SMM Aluminum Morning Meeting Summary]

9.4 SMM Aluminum Morning Meeting Summary

Futures: During the night session, the most-traded SHFE aluminum 2510 contract opened at 20,710 yuan/mt, with the highest price at 20,760 yuan/mt, the lowest at 20,700 yuan/mt, and closed at 20,725 yuan/mt, up 0.07% from the previous closing price. The trading volume was 36,000 lots, and the open interest stood at 215,000 lots. The previous trading day's LME aluminum opened at $2,623/mt, reached a high of $2,623.5/mt, a low of $2,607/mt, and closed at $2,614/mt.

Macro: (1) It is reported that US Treasury Secretary Besant will begin interviewing candidates for the next US Fed chair this week. Since January, Trump has been pressuring for interest rate cuts and threatening to remove Powell. On September 2, nearly 600 economists jointly voiced support for Fed Governor Cook, calling for the preservation of the Fed's independence. US media believe the attacks on the Fed's independence are escalating. (Bullish★) (2) The US Labor Department stated on Wednesday that job openings, a measure of labour market demand, fell to 7.181 million in July, exceeding expectations. Economists had previously forecast JOLTS data to show 7.378 million openings. (Bullish★) (3) US Fed Governor Christopher Waller recently stated that the central bank should start cutting interest rates this month and implement multiple rate cuts in the coming months. (Bullish★)

Fundamentals: (1) According to SMM statistics, on September 4, domestic primary aluminum ingot inventories in mainstream consumption areas totaled 626,000 mt, up 3,000 mt from Monday and 6,000 mt WoW. (Bearish★) (Bullish★) (2) On September 3, LME aluminum inventories stood at 479,600 mt, unchanged from the previous day. Over the past week, LME aluminum inventories decreased by 1,650 mt, a 0.34% drop. Over the past month, inventories rose by 15,900 mt, up 3.42%. (Bullish★)

Primary aluminum market: During Wednesday's early session, the SHFE front-month aluminum contract initially rose before falling, briefly climbing to around 20,870 yuan/mt before declining to approximately 20,750 yuan/mt. In east China, aluminum prices surged, with selling sentiment outperforming buying sentiment. Downstream enterprises showed weak purchasing activity, with transactions occurring at a 10 yuan/mt discount to SMM prices. The east China market selling sentiment index was 3.07, down 0.06, while the purchasing sentiment index stood at 2.89, down 0.01. On Wednesday, SMM A00 aluminum was quoted at 20,730 yuan/mt, up 20 yuan/mt from the previous day, at a 30 yuan/mt discount to the 2509 contract, down 10 yuan/mt from the previous day. In central China, the market remained seller-dominated. Downstream enterprises faced environmental protection-related production cut risks, making it difficult for operating rates to improve in the short term, resulting in sluggish transactions with downstream enterprises. However, intraday traders showed strong purchasing sentiment to capitalize on the discount, awaiting the return of premiums. On Wednesday, the shipment sentiment index in central China stood at 2.77, down 0.18 MoM, while the purchasing sentiment index was 2.88, down 0.02 MoM. SMM's A00 aluminum in central China was quoted at 20,570 yuan/mt against the SHFE aluminum 2509 contract, flat from the previous trading day, at a discount of 190 yuan/mt to the current month contract, down 30 yuan/mt from the prior session.

Recycled aluminum raw materials: Spot primary aluminum prices rose slightly on Wednesday compared to the previous trading day, with SMM A00 aluminum closing at 20,730 yuan/mt, while aluminum scrap prices remained largely stable. As the traditional peak season begins, orders at some downstream scrap utilization enterprises recovered, but tight supply in the scrap market remained the dominant theme, keeping purchase prices elevated and generally tracking aluminum price movements. On Wednesday, baled UBC was quoted at 15,550-16,000 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was quoted at 17,200-17,700 yuan/mt (ex-tax). Baled UBC rose 50 yuan/mt MoM, and shredded aluminum tense scrap (priced based on aluminum content) increased 100-200 yuan/mt MoM. In Jiangxi, scrap aluminum prices continued to adjust on Wednesday, with aluminum tense scrap up 200-300 yuan/mt. The policy implementation has yet to be further confirmed, and recent large price adjustments in the scrap market stem from worsening supply shortages, forcing some scrap utilization enterprises to raise raw material recycling prices to maintain production. Aluminum scrap prices are expected to hover at highs this week, with the tug-of-war between sellers and buyers intensifying. SMM forecasts that shredded aluminum tense scrap (priced based on aluminum content) will trade within the 17,200-17,700 yuan/mt (ex-tax) range, while baled UBC prices, supported by just-in-time procurement, will linger between 15,500-16,000 yuan/mt (ex-tax).

Secondary aluminum alloy: On the futures front, the most-traded cast aluminum alloy 2511 contract opened at the day's low of 20,280 yuan/mt on Wednesday, reached a high of 20,450 yuan/mt, touched a low of 20,230 yuan/mt, and finally closed at 20,285 yuan/mt, down 15 yuan/mt (0.07%) from the previous close. Open interest stood at 8,016 lots, with trading volume at 2,789 lots, as bulls mainly reduced positions. In the spot market, SMM A00 aluminum was quoted at 20,730 yuan/mt on Wednesday, up 20 yuan/mt from the prior session, while SMM ADC12 prices held steady at 20,750 yuan/mt. Aluminum prices fluctuated rangebound intraday, with manufacturers' offers generally stable. As regional tax rebate policies remain unclear, the secondary aluminum market is dominated by wait-and-see sentiment, compounded by persistently tight raw material supply, increasing procurement pressure for enterprises. Demand side, with the traditional peak season approaching, downstream orders showed slight recovery, but high prices continued to curb transaction volumes, keeping downstream purchases largely just-in-time. Overall, ADC12 prices may maintain an upward trend in the short term, supported by cost, low inventory, and policy pressure, but slow demand recovery could limit upside room. Subsequent attention should be paid to the progress of policy implementation, the recovery of aluminum scrap supply, and marginal changes in end-use demand.

Summary: On the macro front, expectations for US Fed interest rate cuts are heating up, coupled with China's policies boosting domestic demand, creating an overall favorable atmosphere that is expected to enhance the aluminum consumption outlook. However, it will take time for domestic supportive policies to translate into actual consumption. On the supply side, with the commissioning of a small amount of replacement capacity, operating capacity is increasing steadily 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 the weekly operating rate of downstream sectors 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 it will take time for inventory to achieve effective destocking. However, the total inventory is not high, and some secondary aluminum enterprises in provinces such as 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 generally more likely to rise than fall, but upward pressure remains. For aluminum prices to effectively break through the significant resistance level of 21,000 yuan/mt, it will require the realization of consumption expectations during the September-October peak season, validated by the subsequent appearance of a destocking turning point for domestic aluminum ingots 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.]