Aluminum alloy social inventory continues the buildup trend, focus on warrant registration next week [SMM Cast Aluminum Alloy Morning Comment]

9.19 SMM Cast Aluminum Alloy Morning Comment

Futures: The most-traded cast aluminum alloy ad2512 futures contract opened at 20,320 yuan/mt overnight, hit a high of 20,480 yuan/mt and a low of 20,310 yuan/mt, and closed at 20,325 yuan/mt, up 5 yuan/mt or 0.02% from the previous close. Trading volume was 2,261 lots, and open interest was 10,294 lots, with the increase mainly from bulls.   

Spot-Futures Price Spread Report: According to SMM data, on September 18, the theoretical premium of SMM ADC12 spot price to the most-traded cast aluminum alloy futures contract (AD2511) 10:15 closing price was 560 yuan/mt.

Industry Dynamics: As the National Day holiday approaches, some die-casting enterprises have released their holiday schedules. According to the SMM survey, most enterprises plan to start the holiday from October 1. Specifically, over 20% of enterprises will suspend production for no more than 2 days, nearly 60% for 8 days or more, and about 20% for 3 to 6 days. Most enterprises are expected to resume work after October 6. Due to poor order conditions, enterprises have limited stockpiling scale for finished product inventories.

Aluminum Scrap Side: On Thursday, spot primary aluminum continued to fall from the previous trading day, with SMM A00 spot closing at 20,780 yuan/mt, and aluminum scrap prices followed the decline overall. Baled UBC was mainly offered at 15,600-16,100 yuan/mt (ex-tax), shredded aluminum tense scrap (priced based on aluminum content) was mainly offered at 17,300-17,800 yuan/mt (ex-tax price). Baled UBC, shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, and mechanical casting aluminum scrap were down 100 yuan/mt MoM from the previous trading day. As over half of September has passed, enterprises in some regions of Henan, Jiangxi, and Anhui reported that they have started stockpiling production raw materials in advance for the National Day holiday, and had to pay higher prices for materials amid aluminum scrap shortages. Aluminum scrap prices are expected to continue fluctuating at highs next week, with both downside risks and cost support. From a macro perspective, the US Fed interest rate cut has intensified market volatility. Although the domestic tax cleanup policy is in a transition period, it will still push up the tax costs for scrap utilization enterprises in the medium and long term and be transmitted to bargain down purchasing prices. On the other hand, the tight supply of aluminum scrap is difficult to alleviate in the short term, especially the tight supply of shredded aluminum tense scrap resources gives suppliers strong bargaining power. SMM expects that the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) will hover around 17,300-17,800 yuan/mt, and baled UBC prices will linger at 15,600-16,100 yuan/mt. The market needs to closely monitor the implementation pace of the tax policy, the sustainability of downstream stocking demand, and the guidance of primary aluminum prices.

Silicon Metal Side: (1) Price: Spot silicon metal prices maintained strong consolidation this week. Yesterday, SMM oxygen-blown #553 silicon in east China was at 9,200-9,500 yuan/mt, and #441 silicon was at 9,500-9,700 yuan/mt. In the futures market, the silicon metal main continuous contract jumped initially and then pulled back yesterday, closing at 8,905 yuan/mt at the end of the session, down 60 yuan/mt from the previous day. This week, northern silicon enterprises were more active in selling. Some silicon enterprises offered prices lower than those of trading firms engaging in both spot and futures market, leading to moderate sales for the former. The latter's spot-futures price spread quotations lacked competitiveness, resulting in sluggish sales. Overall, the transaction center rose WoW. (2) Production: In September, the operating capacity in the north increased compared to August, and the national silicon metal production continued to increase. (3) Inventory: According to SMM, on September 18, the total social inventory of silicon metal in major regions was 543,000 mt, up 4,000 mt WoW. Among them, the general social warehouse inventory was 120,000 mt, up 1,000 mt WoW, and the social delivery warehouse inventory (including unregistered warrants and spot parts) was 423,000 mt, up 3,000 mt WoW. (Excluding Inner Mongolia, Gansu, etc.)

Overseas Market: Overseas ADC12 quotes concentrated at $2,530–$2,550/mt. Domestic spot prices fell by 200 yuan/mt within the week to 20,100–20,300 yuan/mt, with immediate import losses still hovering around 200 yuan/mt. Thai local ADC12 tax-excluded quotes remained at 81-82 baht/kg.

Inventory: As per SMM, on September 18, the social inventory of secondary aluminum alloy ingots in major domestic consumption areas was 55,300 mt, up 1,500 mt from last Thursday.

Summary: Yesterday, aluminum prices fell sharply, with SMM ADC12 prices dropping by 100 yuan/mt to 20,950 yuan/mt. During the week, as aluminum prices retreated, the willingness to sell among aluminum scrap traders increased, marginally improving market circulation. The pressure on raw material procurement for secondary aluminum plants eased slightly, but the overall tight supply situation remained unchanged. More than half of September has passed, and downstream recovery remains mild, with a lukewarm peak season performance. Approaching the National Day holiday, die-casting enterprises are gradually finalizing their holiday arrangements, and pre-holiday stocking demand is providing temporary support to spot prices. Additionally, influenced by the strengthening of the spot-futures price spread, trading activity in the market improved this week. Overall, under the impact of the US Fed interest rate cut, macro sentiment is under pressure, while fundamentals show a tug-of-war between longs and shorts: rigid costs and pre-holiday stockpiling demand provide support, but weak demand recovery and the risk of inventory accumulation pose constraints. It is expected that ADC12 prices will fluctuate at highs in the short term, and close attention should be paid to the status of raw material supply, the pace of demand recovery, changes in registered warrants, and policy implementation.