US Labour Market Weakness Strengthens Expectations for US Fed Interest Rate Cuts, Manufacturing National Standard Upgrade Boosts Long-Term Demand [SMM Aluminum Morning Meeting Summary]

9.5 SMM Aluminum Morning Meeting Minutes

Futures: During the night session of the previous trading day, the most-traded SHFE aluminum 2510 contract opened at 20,620 yuan/mt, with the highest price at 20,715 yuan/mt, the lowest at 20,605 yuan/mt, and closed at 20,625 yuan/mt, up 20 yuan/mt (0.10%) from the previous close. Trading volume stood at 46,000 lots, while open interest reached 202,000 lots. On the LME, the contract opened at $2,612.5/mt, peaked at $2,614/mt, bottomed at $2,588/mt, and settled at $2,590/mt.

Macro: (1) Data released by US ADP on Thursday showed the August "US ADP employment data" fell short of expectations, further indicating headwinds in the labour market and reinforcing expectations for a US Fed interest rate cut. (Bullish★) (2) Trump signed an executive order to formally implement the US-Japan trade agreement. The order specifies tariff adjustments to ensure Japanese imports previously subject to higher tariffs would not face double taxation, while goods with rates below 15% would be adjusted to new rates. (Bullish★) (3) At a press conference held on the morning of the 4th, the National Standards Committee emphasized focusing on key areas and weak links in manufacturing transformation, accelerating the supply of urgently needed and advanced standards, and prioritizing the formulation and revision of over 4,000 national standards in fields like AI and IoT. (Bullish★)

Fundamentals: (1) According to SMM data, as of Thursday, China's total metallurgical-grade alumina capacity reached 1,103.2 million mt/year, with operating capacity at 899.6 million mt/year. The national alumina operating rate dropped 0.89 percentage points WoW to 81.55%, mainly due to reduced roasting furnace loads at some plants for maintenance. (Bullish★) (2) This week, the operating rate of leading domestic aluminum extrusion enterprises rose 1 percentage point MoM to 53%. Structural divergence persisted, with industrial extrusions showing early signs of recovery. (Bullish★)

Primary aluminum market: On Thursday morning, the SHFE front-month aluminum contract opened sharply lower near 20,600 yuan/mt and fluctuated at lows. In east China, market activity rebounded after the price decline, with downstream just-in-time procurement increasing. Transactions settled at a premium of around 10 yuan/mt against the SMM average price. The east China supplier sentiment index rose 0.25 to 3.32, while the purchasing sentiment index increased 0.21 to 3.10. SMM A00 aluminum was quoted at 20,610 yuan/mt on Thursday, down 120 yuan/mt from the previous day, at a discount of 20 yuan/mt against the 2509 contract, up 10 yuan/mt from the prior session. In central China, suppliers' willingness to sell notably decreased post-price drop, with controlled sales pace improving market turnover versus the previous day. Tightened spot supply led to transactions at premiums of 10-30 yuan/mt against the SMM central China price. On Thursday, the shipment sentiment index in central China stood at 3, up 0.2 MoM, while the procurement sentiment index reached 3.05, slightly stronger than the shipment index. SMM's A00 aluminum in central China closed at 20,470 yuan/mt against the SHFE aluminum 2509 contract, down 100 yuan/mt from the previous trading day, with a discount of 160 yuan/mt to the current month's contract, up 30 yuan/mt from the prior session.

Recycled aluminum raw materials: Spot primary aluminum prices pulled back from the previous day, with SMM A00 spot aluminum closing at 20,610 yuan/mt. Aluminum scrap market prices showed significant divergence in adjustments. As the traditional peak season begins, orders at some downstream scrap utilization enterprises recovered. However, tight supply remains the dominant theme in the scrap market, keeping procurement prices elevated. On Thursday, baled UBC scrap was quoted at 15,400-15,900 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) traded at 17,200-17,700 yuan/mt (ex-tax). Baled UBC scrap fell 100 yuan/mt WoW, while shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hubs, and mechanical casting aluminum scrap held steady WoW. Regionally, Shanghai, Jiangsu, Shandong, and Henan closely followed aluminum price movements with adjustments of 50-100 yuan/mt, while Jiangxi, Hubei, Foshan, and Anhui lagged behind, holding flat WoW. Recent sharp price adjustments in some regions stem from unconfirmed policy implementation, exacerbating supply shortages and forcing some scrap processors to raise raw material recovery prices to maintain production. Aluminum scrap prices are expected to hover at highs this week amid intensified tug-of-war between sellers and buyers. SMM forecasts shredded aluminum tense scrap (priced based on aluminum content) to trade within 17,200-17,700 yuan/mt (ex-tax), while baled UBC prices may fluctuate between 15,500-16,000 yuan/mt (ex-tax) supported by rigid demand.

Secondary aluminum alloy: Futures-wise, the most-traded cast aluminum alloy 2511 contract opened at 20,285 yuan/mt on Thursday, hitting a high of 20,330 yuan/mt and a low of 20,175 yuan/mt before settling at 20,215 yuan/mt, down 70 yuan/mt (0.35%) from the previous close. Open interest stood at 7,725 lots with trading volume of 1,814 lots, as bulls mainly reduced positions. In the spot market, SMM A00 aluminum was quoted at 20,610 yuan/mt, down 120 yuan/mt WoW, while SMM ADC12 held steady at 20,750 yuan/mt. Tight scrap availability and rising procurement costs continue to hold ADC12 quotes firm. Downstream consumption shows narrow recovery, with limited order growth, suggesting peak season effects need more time to materialize. Short-term ADC12 prices are expected to fluctuate at highs due to cost support, but upside room remains constrained by weak demand recovery and accumulating social inventory. Future trends require close monitoring of raw material supply, demand recovery pace, and policy developments.

Summary: Domestic and international macro environment remains favorable; fundamentally, supply side replacement capacity continues to increase, with weekly production rising slightly to 847,300 mt; cost side, the full cost of domestic aluminum is 16,618 yuan/mt, down 36 yuan/mt WoW, and the industry average profit narrowed to around 3,991 yuan/mt, decreasing 84 yuan/mt WoW; downstream demand improved marginally, with the proportion of liquid aluminum increasing and casting ingot volume decreasing, but the aluminum ingot inventory has not yet peaked, actual demand has not significantly improved, and downstream enterprises have limited room for cost increases. Aluminum prices are expected to remain under pressure at 20,900-21,000 yuan/mt, but interest rate cut expectations coupled with peak season expectations still exist, providing some support at the lower end. Therefore, SMM expects short-term aluminum prices to move sideways.

[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.]