Macro Tailwinds and Solid Fundamentals Support Aluminum Prices to Hold Up Well in the Short Term [SMM Aluminum Morning Meeting Minutes]

October 20 SMM Aluminum Morning Meeting Minutes

Futures:During the night session on October 17, the most-traded SHFE aluminum contract opened at 20,935 yuan/mt, reached a highest price of 20,960 yuan/mt and a lowest price of 20,890 yuan/mt, and finally closed at 20,925 yuan/mt, down 0.2%. The night session overall showed a trend of volatile adjustment, fluctuating around 20,930 yuan/mt. From a technical analysis perspective, the MA moving average system maintained a bullish alignment (MA5: 20,928 > MA10: 20,903 > MA30: 20,818), with the price holding above the moving averages; the MACD indicator continued its golden cross (DIF: 63.3 > DEA: 58.6); however, trading volume was 51,011 lots, down 26,366 lots WoW. Considering recent highs and lows (the monthly low around 20,600, the high around 21,200), the resistance level is expected in the 21,280-21,480 range, and the support level in the 20,530-20,750 range.

Macro Front:1. There are significant differences within the US Fed regarding the interest rate cut path. New Fed Governor Milan supported a 50-basis-point interest rate cut at the October policy meeting, while Fed Governor Waller advocated maintaining a cautious pace of 25-basis-point cuts per meeting to address the weak labour market. Fed Governor Moussallem stated that if employment faces more risks and inflation is under control, he might support another interest rate cut path. (Bullish ★) 2. Trump and Putin's planned meeting in Budapest raised hopes for ending the Russia-Ukraine conflict. WTI crude oil finally closed up 0.65% at $57.24 per barrel; Brent crude finally closed up 0.69% at $61.26 per barrel. (Bullish ★) 3. He Lifeng held a video call with US Treasury Secretary Bessent and Trade Representative Greer. Both sides agreed to hold a new round of China-US economic and trade consultations as soon as possible. (Bullish ★)

Fundamentals:Supply side, operating aluminum capacity showed no further rise, remaining around 44.06 million mt. Demand side, as of last Thursday, the domestic proportion of liquid aluminum recorded 77.11%, up 0.02 percentage points WoW; the weekly operating rate of leading downstream aluminum processing enterprises recorded 62.5%, flat WoW. Among them, the operating rate of primary alloy increased slightly by 0.4 percentage points, while that of secondary alloy decreased by 0.3 percentage points; the operating rates of other processing sectors remained stable. Cost side, due to the continuous decline in raw material alumina prices, aluminum cost gradually decreased, recording 16,145 yuan/mt as of last Friday, with the industry's average profit expanding to 4,805 yuan/mt. Inventory side, according to SMM statistics, aluminum ingot inventory in mainstream domestic consumption areas recorded 625,000 mt this Monday, destocking 2,000 mt WoW from last Thursday and destocking 25,000 mt WoW from last Monday. SMM expects domestic aluminum ingot inventory to maintain an overall destocking trend in the second half of October.

Primary Aluminum Market:Last Friday, SHFE aluminum mainly fluctuated downward in the morning session, but the overall absolute price did not decline compared to Thursday morning. In east China, high aluminum prices weakened downstream buying sentiment, with actual transactions at a discount of about 10 yuan/mt to a premium of 10 yuan/mt against the SMM average price. Last Friday, the east China market selling sentiment index was 3.29, down 0.05 WoW; the buying sentiment index was 3.21, down 0.05 WoW. Last Friday, SMM A00 aluminum closed at 20,950 yuan/mt, flat from the previous trading day, at parity with the 2511 contract, unchanged from the previous trading day. In central China, trading sentiment continued to weaken. With high absolute prices, downstream enterprises sought discounted sources for purchase, while holders refused to budge on prices and were reluctant to sell. Actual transactions were around a discount of 30 yuan/mt against the SMM average price. Last Friday, the central China market selling sentiment index was 2.63, down 0.06 WoW; the buying sentiment index was 2.41, down 0.14 WoW. SMM Central China A00 was recorded at 20,840 yuan/mt, down 30 yuan/mt from the previous trading day, at a discount of 110 yuan/mt against the November contract, down 30 yuan/mt from the previous trading day. The Henan-Shanghai price spread decreased by 30 yuan/mt WoW to -110 yuan/mt.

Recycled Aluminum Raw Materials:Last Friday, spot primary aluminum prices were flat from the previous trading day, with SMM A00 spot closing at 20,950 yuan/mt, while aluminum scrap market prices were generally unchanged. With the traditional peak season half over, tight supply remains the main theme in the aluminum scrap market, keeping procurement prices high, but the sustainability of these high levels remains to be seen. Last Friday, baled UBC was quoted in a range of 15,900-16,500 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was quoted in a range of 17,300-17,800 yuan/mt (ex-tax). Baled UBC rose 50 yuan/mt WoW, while shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, and mechanical casting aluminum scrap were flat WoW. In Hubei, procurement challenges for aluminum tense scrap became prominent, with shredded aluminum tense scrap and mechanical casting aluminum scrap rising 200 yuan/mt in a single day. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai was 2,212 yuan/mt, and the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 2,189 yuan/mt. The aluminum scrap market is expected to hold up well this week, with the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) hovering around 17,500-18,000 yuan/mt. The tight supply of raw materials is difficult to change in the short term, coupled with strong support for SHFE aluminum in the 20,800-20,850 yuan/mt range. A breakthrough above the 21,000 yuan/mt level would further transmit positive effects. On the other hand, uncertainty from Trump's tariff threats, the underwhelming September-October peak season for downstream sectors, limited acceptance of high-priced raw materials by scrap utilization enterprises, and inventory pressure on finished products at downstream scrap utilization enterprises will all curb procurement enthusiasm. The market needs to focus on whether primary aluminum prices can stabilize at high levels, the post-holiday restocking pace of secondary aluminum enterprises, and the sustainability of end-use demand.

Secondary Aluminum Alloy:Last Friday, SMM A00 aluminum price was quoted at 20,950 yuan/mt, holding steady from the previous day, while the SMM ADC12 price also remained unchanged at 21,050 yuan/mt, showing insufficient momentum for price adjustments. Currently, the tight supply of aluminum scrap is difficult to alleviate in the short term, providing solid cost support. Some enterprises, constrained by material shortages or losses, have seen a decline in their operating rates. Meanwhile, demand resilience and low plant inventories continue to support prices, though caution is warranted against the suppression of upside room from high social inventory and warrant pressure. Attention should also be paid to the impact of policy implementation on the supply side. ADC12 prices are expected to hold up well in the near term, with a focus on raw material circulation, the pace of demand recovery, and inventory changes.

Aluminum Market Summary:Overall, sentiment on the macro front is positive. Internationally, expectations for US Fed interest rate cuts are favorable, and last Friday, Trump softened his previously hawkish stance on rate hikes; subsequent developments warrant continued monitoring. Domestically, the positive macro atmosphere supports market confidence. On the fundamentals side, supply-wise, operating aluminum capacity remained flat. Demand-wise, as the traditional peak season progresses further into October, the proportion of liquid aluminum is gradually increasing, with overall demand performance remaining stable. Cost support has weakened, as alumina prices continue to decline, leading to a further overall decrease in aluminum costs. In terms of inventory, aluminum ingot stocks decreased by 2,000 mt MoM on Monday, and it is expected that domestic aluminum ingot inventory will enter a destocking trend in the second half of October. In summary, with both domestic and overseas macro aspects leaning optimistic, coupled with overall steady fundamental performance, aluminum prices are expected to hold up well in the short term.

[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 as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]