Pre-Holiday Stockpiling Boosts Spot Premiums/Discounts, Expected Inventory Buildup During Double Holiday Period to Exert Top Pressure on Aluminum Prices and Premiums/Discounts [SMM Aluminum Price Weekly Review]

SMM September 25 News:

Macro perspective: The US Fed cut interest rates by 25 basis points last Wednesday. This week, views diverged on whether further rate cuts are needed, increasing uncertainty for the market outlook. Fed Governor Bowman recently stated that the labour market is deteriorating, and policymakers face a serious risk of "falling behind the curve," requiring decisive and proactive action. She supports three 25-basis-point rate cuts within the year. San Francisco Fed President Daly believes that economic growth and the labour market are slowing down, while inflation is lower than expected, suggesting further rate cuts may be appropriate. Conversely, St. Louis Fed President Musallem emphasized that current interest rates are between "slightly restrictive and neutral," with limited room for further cuts. Chicago Fed President Goolsbee said that given inflation remains above target and is trending upward, the Fed should be cautious about further rate cuts. Domestically, the Third Council Fifth Meeting of the CNIA Copper Branch was held in Xiong'an New Area, Hebei Province on September 24. It mentioned that copper industry enterprises must firmly oppose "involutionary" competition in the copper smelting sector. LME copper futures drove LME aluminum futures higher.

Fundamentals: Supply side, recent aluminum production remained relatively stable, maintained at 847,300 mt/week. Cost side, the domestic aluminum full cost was 16,283 yuan/mt, down 81 yuan/mt WoW, while the industry's average profit expanded by 71 yuan/mt to around 4,487 yuan/mt. Spot market, aluminum prices fluctuated between 20,680-20,810 yuan/mt during the period. Spot discounts narrowed to near parity, primarily due to the approaching holiday, which spurred some pre-holiday stockpiling demand from downstream enterprises, coupled with a pullback in aluminum futures prices, boosting downstream purchasing enthusiasm. National aluminum ingot inventory saw a destocking of 21,000 mt WoW, and spot premiums/discounts strengthened. Particularly in central China, supply was slightly tight. With suppliers refusing to budge on prices, the price spread between Henan and Shanghai turned positive, rising from -80 yuan/mt to 30 yuan/mt during the period, an increase of 110 yuan/mt.

The holiday is approaching. Reportedly, some aluminum extrusion enterprises in South China will have holidays lasting 6-7 days or more, longer than in previous years, but overall, the difference is relatively small. In the aluminum wire and cable sector, orders are relatively concentrated at top-tier enterprises, which are expected to have no holiday arrangements, similar to previous years. Top-tier aluminum plate/sheet, strip and foil enterprises also basically have no holiday arrangements, but production schedules are expected to slow down during the holiday. Based on historical data for the same period and SMM's market communication, the total inventory buildup during the National Day holiday is preliminarily estimated to be around 60,000-80,000 mt. The actual extent of inventory buildup will depend on pre-holiday shipments from aluminum plants and goods in transit.

Overall, on the macro front, diverging views within the US Fed on future monetary policy have increased market uncertainty; domestically, the "anti-involution" sentiment in copper smelting has boosted aluminum futures. Fundamentals side, pre-holiday stockpiling is nearing its end, with subsequent purchase volumes expected to decline. During the holiday period, aluminum ingot inventory is projected to build by 60,000-80,000 mt, coupled with September destocking falling short of expectations. Post-holiday, aluminum premiums are likely to face some pressure. From a fundamental perspective, aluminum prices remain under pressure at the 20,900-21,000 yuan/mt level. Entering October, some enterprises in the north have indicated that the proportion of liquid aluminum is expected to rise, with casting ingot volumes likely to remain low, providing support for aluminum prices. Going forward, attention should be paid to aluminum ingot inventory changes around the holiday period. Additionally, it is important to note that anti-involution related policies may drive aluminum prices beyond fundamental gains. Next week, SHFE aluminum is expected to trade in the range of 20,600-21,000 yuan/mt, while LME aluminum is forecast to fluctuate between $2,600-2,750/mt.

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