Tightening Global Fundamentals to Keep Aluminum Prices Elevated in the Short Term [SMM Aluminum Morning Meeting Minutes]

SMM Aluminum Morning Meeting Minutes, 10.23

Futures:During the night session on October 22, the most-traded SHFE aluminum contract opened at 21,105 yuan/mt, reached a highest price of 21,180 yuan/mt and a lowest price of 21,085 yuan/mt, and finally closed at 21,105 yuan/mt, up 0.42%. The night session overall showed a pattern of retreat after rapid rise, with the trading center moving up to around 21,100 yuan/mt. From a technical perspective, the MA moving averages returned to a bullish alignment (MA5: 21,098 > MA10: 21,048 > MA30: 20,981 > MA60: 20,960), and the MACD 60-minute candlestick showed a slight expansion of the red column, maintaining a golden cross state. In terms of trend, SHFE aluminum remains in an upward channel. Considering recent highs and lows (the monthly low of 20,640 and 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:Trump claimed that China and the US would reach a trade agreement at the APEC summit, but the heads of state might not meet. Foreign Ministry spokesperson Guo Jiakun responded on October 22 that head-of-state diplomacy plays an irreplaceable strategic leading role in China-US relations, and the heads of state of China and the US maintain close exchanges and communication. (Neutral) Russia-Ukraine situation: The EU approved the 19th round of sanctions against Russia, including a ban on liquefied natural gas imports; Besant stated it would "significantly increase" sanctions against Russia, after which the US Treasury Department announced sanctions against two major Russian oil companies;Trump canceled the meeting with Putin in Budapest, as the meeting would not achieve any progress. (Bullish)

Fundamentals:Inventory side, Wednesday's daily inventory of aluminum ingots in mainstream consumption areas recorded 46.30, with a destocking of 6,000 mt WoW; aluminum billet inventory recorded 102,500 mt, with a destocking of 2,000 mt WoW. Cost side, the average cost in the aluminum industry recorded 16,092 yuan/mt on Wednesday, down 12 yuan/mt WoW, mainly affected by the decline in alumina prices, and the average industry profit expanded by 22 yuan/mt to 4,888 yuan/mt. Supply and demand side, supply side, according to foreign media reports, Century Aluminum announced on October 21 that its Norðurál Grundartangi smelter in Iceland suspended production due to electrical equipment failure, forcing one of its two primary aluminum production lines to halt. There were no reports of casualties. As a result, the smelter's production was temporarily cut by two-thirds, while the other production line was unaffected and remains in full production. The company is assessing the impact and developing a timetable for obtaining replacement equipment and restoring full production. Demand side, no significant changes were observed.

Primary Aluminum Market:Yesterday, the trading center of SHFE aluminum moved upward in the morning session, rising to around 20,980 yuan/mt. Overall, destocking of aluminum ingots provided some support to spot premiums/discounts, but high aluminum prices led to weak downstream purchases. Amid the tug-of-war, spot premiums/discounts weakened slightly. In east China, suppliers mainly offered at the average price around the market opening, with overall transactions being average. Combined with the strengthening aluminum prices, the actual transactions were mainly at a discount of around 10 yuan/mt against the SMM average price. The selling sentiment index in the east China market on Wednesday was 3.19, down 0.09 WoW, while the buying sentiment index was 3.12, down 0.13 WoW. On Wednesday, the SMM A00 aluminum price was 20,980 yuan/mt, up 10 yuan/mt from the previous trading day, at parity with the SHFE 2511 contract, down 10 yuan/mt from the previous trading day. In central China, spot transactions on Wednesday were average. With aluminum prices strengthening, downstream selling increased slightly, but downstream buying sentiment weakened. Some downstream players reported longer payment periods and a decline in orders on hand, raising concerns about the sustainability of demand. Actual transactions were mainly at a discount of 10 yuan/mt to parity against the SMM average price. The selling sentiment index in the central China market on Wednesday was 2.77, up 0.01 WoW, while the buying sentiment index was 2.66, down 0.02 WoW. The SMM central China A00 aluminum price was recorded at 20,860 yuan/mt, up 10 yuan/mt from the previous trading day, at a discount of 120 yuan/mt against the SHFE November contract, down 10 yuan/mt from the previous trading day. The price spread between Henan and Shanghai remained flat WoW at -120 yuan/mt.

Recycled Aluminum Raw Materials:Yesterday, spot primary aluminum prices fluctuated rangebound compared to the previous trading day, with the SMM A00 spot price closing at 20,980 yuan/mt, while aluminum scrap market prices remained generally flat. With the traditional peak season more than half over, tight supply remains the main theme in the aluminum scrap market, keeping procurement prices high, though the sustainability of these high levels needs to be monitored. On Wednesday, baled UBC was concentratedly offered at 15,900-16,500 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was concentratedly offered at 17,300-17,800 yuan/mt (ex-tax). Prices for baled UBC, shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hubs, and mechanical casting aluminum scrap remained flat WoW. Regarding the price difference between primary aluminum and scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai widened by 50 yuan/mt from Monday to 2,242 yuan/mt, while the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan widened by 70 yuan/mt from Monday to 2,238 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 signals. On the other hand, uncertainty 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 post-holiday restocking pace of secondary aluminum enterprises, and the sustainability of end-use demand.

Secondary Aluminum Alloy: This Wednesday, the SMM A00 aluminum price was quoted at 20,980 yuan/mt, up 10 yuan/mt from the previous day, while the SMM ADC12 price held steady at 21,100 yuan/mt. The current tight supply of aluminum scrap is unlikely to ease in the short term, providing solid cost support. Some enterprises saw their operating rates decline 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, it remains resilient overall, supporting prices. However, high social inventory and warrant pressure may limit upside room, and attention should be paid to the impact of policy implementation on the supply side. 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 toward a favorable atmosphere, but with a new round of Sino-US trade negotiations approaching and ongoing news about the Russia-Ukraine conflict, related developments need continued monitoring. Domestically, the positive macro environment supports market confidence. On the fundamentals, supply side, domestic operating aluminum capacity remained flat, while overseas supply is expected to decline, potentially supporting overseas aluminum prices. Demand side, some downstream enterprises reported a decrease in orders on hand in October, with limited room for further demand growth, but demand performance is generally stable in the short term. Cost support weakened, as aluminum costs continued to decline due to falling alumina prices. In terms of inventory, domestic aluminum ingot inventory is expected to enter a destocking trend in the second half of October. Overall, with optimistic domestic and overseas macro conditions, coupled with tightening supply-demand fundamentals and inventory drawdowns, 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.]