Limited Room for Demand Growth, Aluminum Prices Face Resistance to Further Increases [SMM Aluminum Morning Meeting Minutes]

SMM Aluminum Morning Meeting Minutes, 10.22

Futures: During the night session on October 21, the most-traded SHFE aluminum contract opened at 21,000 yuan/mt, reached a highest price of 21,045 yuan/mt and a lowest price of 20,955 yuan/mt, and finally closed at 20,970 yuan/mt, up 0.03%. The night session overall showed a pattern of retreating after a rapid rise. From a technical perspective, insufficient trading volume constrained the rebound momentum; the MACD 60-minute candlestick level's red bars did not show continuous expansion. Although it is currently in a golden cross state, there is still resistance to further upward movement. Considering recent highs and lows (the monthly low of 20,640 and the high around 21,200), the resistance level is expected to be in the range of 21,280-21,480, and the support level in the range of 20,530-20,750.

Macro Front: On October 21, Minister of Commerce Wang Wentao held a scheduled video call with European Commission Executive Vice President Maroš Šefčovič, responsible for trade and economic security, where they exchanged in-depth views on key China-EU economic and trade topics including export controls and the EU's anti-subsidy investigation into Chinese EVs. (Bullish ★) The General Office of the People's Government of Guangdong Province issued the "Guangdong Province Artificial Intelligence Empowering High-Quality Development of the Manufacturing Industry Action Plan (2025-2027)", encouraging local cities to establish "model vouchers" to support enterprises in purchasing industrial model services; leveraging provincial and municipal efforts, through policy tools like "computing power vouchers" and "training power vouchers", to provide financial support to eligible enterprises. (Bullish ★)

Fundamentals: Inventory side, Tuesday's daily inventory of aluminum ingots in mainstream consumption areas recorded 46.90, with an inventory buildup of 3,500 mt WoW; aluminum billet inventory recorded 104,500 mt, with a destocking of 1,500 mt WoW. Cost side, Tuesday's average cost for the aluminum industry recorded 16,104 yuan/mt, down 15 yuan/mt WoW, mainly affected by falling alumina prices, while the average industry profit expanded by 55 yuan/mt to 4,866 yuan/mt. Supply and demand have not shown significant changes recently, with the fundamentals maintaining a relatively tight supply-demand pattern.

Primary Aluminum Market: Yesterday, during the early SHFE aluminum session from around 9:00 to 9:40, the current-month SHFE aluminum contract fluctuated around 20,860-20,900 yuan/mt. After 9:40, the trading center of the most-traded SHFE aluminum contract rose to around 20,950 yuan/mt. In East China, in the early opening period, the absolute price pulled back compared to the previous trading day, leading to a rebound in downstream purchasing enthusiasm. Actual transactions occurred mostly at parity to a premium of around 10 yuan/mt against the SMM average price. After the absolute price rose, trading sentiment weakened, with transactions occurring at a discount of around 20-10 yuan/mt against the SMM average price appearing in the market. However, as many enterprises had already completed their trades, subsequent trading volume was low. This Tuesday, the selling sentiment index in the East China market was 3.28, up 0.05 WoW; the purchasing sentiment index was 3.25, up 0.07 WoW. This Tuesday, SMM A00 aluminum was quoted at 20,970 yuan/mt, up 40 yuan/mt from the previous trading day, at a premium of around 10 yuan/mt against the 2511 contract, flat compared to the previous trading day. In central China, spot transactions were generally moderate on Tuesday, but overall trading sentiment rebounded WoW. During the early trading session, the absolute price was relatively low, and the willingness to sell was not strong, while downstream purchases were active. Actual transactions were mostly at parity with the SMM average price. The selling sentiment index in the central China market was 2.76 on Tuesday, up 0.12 WoW, while the purchasing sentiment index was 2.68, up 0.18 WoW. SMM A00 aluminum in central China closed at 20,850 yuan/mt, up 40 yuan/mt from the previous trading day, at a discount of 110 yuan/mt against the November contract, flat from the previous day. The price spread between Henan and Shanghai remained unchanged WoW at -120 yuan/mt.

Recycled Aluminum Raw Materials:Spot primary aluminum prices rose slightly yesterday compared to the previous trading day, with SMM A00 spot aluminum closing at 20,970 yuan/mt, while aluminum scrap prices remained generally flat. With the traditional peak season more than halfway through, tight supply remains the main theme in the aluminum scrap market, and procurement prices remain high, though the sustainability of these high levels remains to be seen. On Tuesday, baled UBC was quoted in the range of 15,900-16,500 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was quoted in the range of 17,300-17,800 yuan/mt (ex-tax). Prices for baled UBC, shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, and mechanical casting aluminum scrap remained flat WoW. This week, the aluminum scrap market chose to wait and observe aluminum price trends, with quotations remaining stable across regions. Procurement challenges for aluminum tense scrap in Hubei became more prominent, with prices for shredded aluminum tense scrap and mechanical casting aluminum scrap rising by 100 yuan/mt sequentially in a single day. 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 unlikely to ease 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 signals. On the other hand, uncertainties surrounding Trump's tariff threats, the underwhelming performance of the downstream September-October peak season, 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 closely monitor whether primary aluminum prices can stabilize at high levels, the restocking pace of secondary aluminum enterprises after the holiday, and the sustainability of end-use demand.

Secondary Aluminum Alloy:On Tuesday, the SMM A00 aluminum price was quoted at 20,970 yuan/mt, up 40 yuan/mt from the previous day, while the SMM ADC12 price rose slightly by 50 yuan/mt to 21,100 yuan/mt. The current tight supply of aluminum scrap is unlikely to ease in the short term, and cost support remains solid. Some enterprises experienced a decline in operating rates due to raw material shortages or losses, while finished product inventories at plants remained low, leading to firm quotations or active follow-up increases. Although demand has not shown significant improvement compared to September, overall resilience remains, providing support for prices. However, high social inventory and warrant pressure may limit upside room, while the impact of policy implementation on the supply side also requires attention. ADC12 prices are expected to hold up well in the short term, with a focus on raw material circulation, demand performance, and inventory changes.

Aluminum Market Summary:Overall, the macro front leans positive, but with a new round of Sino-U.S. trade negotiations approaching, follow-up developments need continuous monitoring. The domestic macro environment remains favorable, supporting market confidence. On the supply side, operating aluminum capacity remains flat. On the demand side, some downstream enterprises reported a decline in orders on hand in October, with limited room for further demand growth in the near term; however, demand is expected to remain stable in the short run. Cost support has weakened, as alumina prices continue to fall, driving aluminum costs lower. Inventory-wise, national aluminum ingot stocks fell by 2,000 mt WoW on Monday, and domestic aluminum ingot inventories are expected to enter a destocking trend in the second half of October. In summary, optimistic domestic and overseas macro conditions, coupled with steady fundamental performance, should keep aluminum prices firm.

[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. SMM assumes no responsibility for decisions made by clients.]