Stockpiling Before the Holiday Season Nears Its End, Aluminum Prices Continue to Encounter Resistance [SMM Aluminum Morning Meeting Minutes]

SMM Aluminum Morning Meeting Minutes, 9.26

Futures: In yesterday's night session, the most-traded SHFE aluminum 2511 contract opened at 20,790 yuan/mt, with the highest price at 20,840 yuan/mt, the lowest price at 20,750 yuan/mt, and closed at 20,800 yuan/mt, up 20 yuan/mt or 0.10% from the previous close. Trading volume was 48,000 lots, and open interest was 219,000 lots. On the LME, aluminum opened at $2,660.5/mt, reached a high of $2,668/mt, a low of $2,658/mt, and closed at $2,663/mt.

Primary aluminum market: SHFE aluminum mainly fluctuated with adjustments in the early session, with the price center hovering around 20,760 yuan/mt. In east China, futures prices strengthened, and as downstream users had completed some stockpiling earlier, trading weakened on Thursday, with actual transactions at a discount of 10 yuan/mt to parity against the SMM average price. The east China market selling sentiment index was 3.70 on Thursday, up 0.04 WoW; the purchasing sentiment index was 3.60, down 0.01 WoW. On Thursday, SMM A00 aluminum was quoted at 20,770 yuan/mt, up 90 yuan/mt from the previous trading day, at parity against the 2510 contract, unchanged from the previous day. In central China, stockpiling enthusiasm for the upcoming holiday remained, but sellers had some long-term contract delivery needs, leading to slightly tight spot supply. They refused to budge on prices and held back sales, with actual transactions concentrated at a premium of 20 yuan/mt against the SMM central China aluminum price. The central China market selling sentiment index was 3.72 on Thursday, up 0.05 WoW; the purchasing sentiment index was 4.00, up 0.15 WoW. On Thursday, SMM central China A00 aluminum was recorded at 20,800 yuan/mt, up 110 yuan/mt from the previous trading day, at a premium of 30 yuan/mt against the October contract, up 20 yuan/mt from the previous day. The price spread between Henan and Shanghai rose 20 yuan/mt WoW to 30 yuan/mt.

Recycled aluminum raw materials: Spot primary aluminum prices rebounded on Thursday compared to the previous trading day, with SMM A00 aluminum closing at 20,770 yuan/mt, and aluminum scrap prices generally followed the increase. With the National Day holiday approaching, enterprises in parts of Henan, Jiangxi, and Shandong reported that they had started stockpiling production raw materials in advance for the holiday. Amid the aluminum scrap shortage, overall market prices continued to hover at highs. On Thursday, baled UBC was quoted at 15,550-16,150 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was quoted at 17,300-17,800 yuan/mt (ex-tax). Baled UBC fell 50 yuan/mt WoW from the previous trading day, while shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, and mechanical casting aluminum scrap rose 100 yuan/mt WoW. In Anhui and Hubei, aluminum tense scrap prices were unchanged on Thursday. Aluminum scrap prices are expected to hover at highs next week. On one hand, the tight supply fundamentals of aluminum scrap are difficult to alleviate in the short term, and the support from downstream pre-holiday stockpiling demand continues to ferment. On the other hand, there has been no further feedback on the implementation of domestic tax clearance policies, but in the long run, scrap utilization enterprises still have the intention to drive down prices. Overall, the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) is expected to fluctuate around 17,300-17,800 yuan/mt, while baled UBC prices hover near 15,600-16,100 yuan/mt. The market should closely monitor the sustainability of downstream stocking demand ahead of the National Day holiday, the actual implementation pace of tax policies, and further directional cues from primary aluminum prices.

Secondary aluminum alloy: On the futures front, the most-traded cast aluminum alloy futures contract 2512 opened at the day's low of 20,320 yuan/mt on Thursday, reached a high of 20,470 yuan/mt, and finally settled at 20,385 yuan/mt, up 55 yuan/mt or 0.27% from the previous session. Open interest stood at 11,767 lots, with trading volume at 3,950 lots, and the session was dominated by long position increases. In the spot market, the SMM A00 aluminum price rose 90 yuan/mt WoW to 20,770 yuan/mt on Thursday, while the SMM ADC12 price increased 50 yuan/mt to 20,900 yuan/mt. Pre-holiday raw material stocking demand from secondary aluminum plants was constrained by tight aluminum scrap supply, highlighting procurement pressure. Demand side, as the National Day and Mid-Autumn Festival holidays overlapped this year, downstream die-casting enterprises extended their holiday breaks by 1-2 days YoY, with most companies taking 3-8 days off (a few maintained production). Although pre-holiday stocking demand boosted transactions for manufacturers and traders, the overall increase was limited. Overall, cost support from aluminum scrap and pre-holiday stocking demand provide a floor for ADC12 prices, but extended downstream holidays, limited restocking increments, and continuous inventory buildup cap upside potential. ADC12 prices are expected to fluctuate rangebound before the holiday, with close attention needed on raw material availability, holiday inventory accumulation, and post-holiday demand recovery.

Aluminum market summary: On the macro front, the US Fed exhibited increased internal divergence over future monetary policy paths. Fed Governor Bowman stated that the focus should now shift to employment rather than inflation; this year's voting member, Kansas City Fed President Schmid, believes the balance sheet should be reduced as much as possible; Chicago Fed President Goolsbee expressed some unease about implementing too many premature interest rate cuts based on slowing employment data, still confirming whether inflation has peaked. San Francisco Fed President Daly also argued against fully shifting to a neutral stance, citing excessive risks. (Neutral★) Fundamentals: Supply side, recent aluminum production remained relatively stable at 847,300 mt/week; cost side, the domestic aluminum full cost was 16,283 yuan/mt, down 81 yuan/mt WoW, with the industry's average profit expanding 71 yuan/mt to around 4,487 yuan/mt. Weekly national aluminum ingot inventory destocked by 21,000 mt, and spot premiums/discounts strengthened. Particularly in central China, supply appeared somewhat tight, and 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, a gain of 110 yuan/mt. The Mid-Autumn Festival and National Day holiday is approaching. It is reported that some aluminum extrusion enterprises in South China will have holidays lasting 6-7 days or more, which is longer than in previous years, but overall, the difference is relatively small. In the aluminum wire and cable sector, top-tier enterprises have relatively concentrated orders and 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 during the holiday are expected to slow down. Based on historical data for the same period and SMM's market communication, the total inventory buildup during the National Day holiday is temporarily estimated to be around 60,000-80,000 mt. The specific extent of inventory buildup will depend on the pre-holiday shipment volume from aluminum plants in transit. Overall, on the macro front, increased divergence within the US Fed over future monetary policy paths has added uncertainty to the market. Domestically, sentiment around "anti-involution" in copper smelting has driven aluminum futures higher. Fundamentals side, pre-holiday stockpiling is nearing its end, and subsequent purchase volume is expected to decrease. Aluminum ingot inventory during the holiday is expected to build by 60,000-80,000 mt. Combined with September destocking falling short of expectations, aluminum premiums are expected to face some pressure in the initial post-holiday period. From a fundamentals perspective, the aluminum price remains under pressure at the 20,900-21,000 yuan/mt level. Entering October, some enterprises in the north have reported that the proportion of liquid aluminum is expected to increase, and casting ingot volume is expected to remain low, providing support for the aluminum price. Subsequent attention should be paid to aluminum ingot inventory changes around the holiday. Additionally, it is important to note that policies related to anti-involution may drive aluminum prices beyond fundamentals-based increases.

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