Capital Inflows Combined with Expectations of Supply Tightening, SHFE Aluminum's Strong Momentum of Rise Continues [SMM Aluminum Morning Meeting Minutes]

11.14 SMM Aluminum Morning Meeting Summary

Futures: From a technical analysis, the SHFE aluminum 2601 contract closed slightly higher at 22,100 yuan/mt in the night session yesterday, with a gain of 0.50%. The technical analysis shows that the price is above MA5 (22,085) and MA10 (22,088) but below MA30 (22,093) and MA60 (22,102), indicating a strong short-term trend but facing pressure in the medium and long-term; the MACD indicator shows DIF (-3.2053) crossing above DEA (-3.7750) with the bar turning positive to 1.1393, suggesting weakening downward momentum; open interest increased to 452,531 lots, with a daily increase of 5,872 lots, reflecting capital inflows supporting the price. Referring to recent highs and lows (high 22,160, low 21,975), the expected short-term resistance level is 22,150-22,200 yuan/mt, and the support level is 21,900-22,000 yuan/mt. Overall, the night session was firm, with a bullish technical outlook, but a breakthrough of the upper resistance is needed to confirm further upside potential.

Macro Front: US President Trump signed a temporary federal government funding bill passed by both chambers of Congress, ending the longest-ever 43-day federal government "shutdown." Trump stated that the US government "shutdown" cost $1.5 trillion, and it would take weeks or even months to fully assess the overall impact. (Neutral ★) The National Information Center's leading indicators show that in October, offline consumption heat index grew 17.3% YoY, infrastructure operating rate and workload both increased MoM, and the main industrial products' operating rate rose 0.5 percentage points YoY; the bonded area people flow heat index grew 17.7% YoY, with the growth rate 7 percentage points higher than in September. (Bullish ★) The full exemption policy for new energy vehicle purchase tax is about to end, and automakers have started a battle for orders. As of the 13th, 17 mainstream auto brands including Li Auto, NIO, Chery, AITO, and Xiaomi have introduced a purchase tax subsidy plan, covering the tax for consumers who placed orders this year. (Neutral ★)

Fundamentals: Fundamentally, domestic aluminum supply remains stable; overseas, an Icelandic aluminum plant announced production cuts due to electrical equipment failure, and a Mozambican aluminum plant faces the risk of production cuts or shutdowns due to unresolved energy agreements. These events have led to expectations of tightening aluminum supply, affecting market sentiment. In terms of the proportion of liquid aluminum, this week's SMM weekly liquid aluminum ratio recorded 77.25%, down 0.5 percentage points MoM. On one hand, some sectors are transitioning from peak to off-season, with marginal weakening in operating rates; on the other hand, as aluminum prices rise, downstream processing fees are under pressure, leading some processing enterprises to cut production, while more enterprises supplying liquid aluminum are increasing casting ingots. This week, some aluminum rod enterprises reduced production due to inventory buildup, falling processing fees, and capital occupation pressures. According to SMM statistics, the inventory of aluminum ingots in major domestic consumption areas recorded 621,000 mt this Thursday, a destocking of 6,000 mt compared to this Monday.

Primary Aluminum Market:SHFE aluminum started to surge significantly from Wednesday afternoon and further climbed on Thursday morning, with the trading center rising to around 22,000. In east China, aluminum prices soared sharply. Downstream processors were unable to purchase, and purchasing sentiment weakened noticeably. However, some traders were optimistic about future aluminum prices, leading to hoarding behavior. Meanwhile, large players purchased at a premium. Actual transactions remained at parity to a premium of 10 yuan/mt against the SMM average price. During the second trading session, aluminum prices climbed further. Traders concluded their purchases, and market transactions cooled under high aluminum prices, with some transactions occurring at a discount. The east China market selling sentiment index was 3.09 this Thursday, up 0.04 WoW; the buying sentiment index was 2.86, down 0.11 WoW. SMM A00 aluminum was quoted at 21,920 yuan/mt this Thursday, up 250 yuan/mt from the previous trading day, at parity against the November contract and at a discount of 30 yuan/mt against the December contract. Aluminum prices rose sharply this Thursday, with clear unilateral selling sentiment. However, downstream enterprises saw a decline in operating rates and had no immediate restocking demand. Transactions were mostly for hedging by traders, resulting in low trading volume. The actual transaction price range was wide, hovering between the central China price and a discount of 40 yuan/mt to the central China price. Actual transaction prices ranged from a discount of 10 yuan/mt to a premium of 10 yuan/mt against the central China price. The central China market selling sentiment index was 2.91 this Thursday, up 0.01 WoW; the buying sentiment index was 2.83, down 0.02 WoW. SMM central China closed at 21,780 yuan/mt, up 230 yuan/mt from the previous trading day, at a discount of 140 yuan/mt against the November contract and a discount of 170 yuan/mt against the December contract. The Henan-Shanghai price spread was -140 yuan/mt, down 20 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials:Spot primary aluminum prices increased this Thursday compared to the previous trading day. SMM A00 spot closed at 21,920 yuan/mt. Aluminum scrap market prices followed the rise in aluminum prices. As the traditional peak season ended, downstream demand showed clear divergence. Demand for scrap used in cast aluminum alloys remained stable, providing more consumption support, while demand for scrap used in wrought aluminum alloys began to show signs of weakening. However, tight market supply remained the main theme, keeping purchase prices high, though the sustainability of these high levels needs consideration. This Thursday, baled UBC was centrally quoted at 16,550-17,050 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was centrally quoted at 17,650-18,550 yuan/mt (ex-tax). The price of baled UBC increased by 100 yuan/mt WoW. Prices for clean tapping aluminum wire, shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, mechanical casting aluminum scrap, and aluminum shavings increased by 100-250 yuan/mt WoW today. Spot aluminum prices rose on Thursday. Aluminum scrap prices in Foshan, Henan, Guizhou, and Jiangxi followed suit, increasing by 100-200 yuan/mt, while prices in Shanghai, Zhejiang, Jiangsu, and Tianjin mainly rose by 200-250 yuan/mt. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai widened by 250 yuan/mt from the previous trading day to 3,182 yuan/mt on Thursday, while the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan widened by 122 yuan/mt to 2,571 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) likely shifting upward to 17,900-18,400 yuan/mt. The macro environment at home and abroad continued to release positive signals, and the improving trend in orders for downstream casting alloy processing is expected to continue, providing sustained support for aluminum scrap prices. However, two major risks warrant caution: first, against the backdrop of high aluminum prices, enterprises mostly make just-in-time procurement and reduce raw material inventory hoarding, which may suppress prices; second, the implementation of environmental protection-driven production restrictions in central China and the potential risk of primary aluminum prices retreating after a rapid rise. If these risks materialize, the aluminum scrap market will face pullback pressure. Overall, the aluminum scrap market will continue to experience a complex tug-of-war between sellers and buyers. Market participants are advised to closely track primary aluminum price trends, changes in downstream demand, and developments in environmental protection policy.

Secondary Aluminum Alloy:The SMM A00 aluminum spot price surged by 250 yuan/mt to 21,920 yuan/mt on Thursday, hitting a new high for the year. In the secondary aluminum market, the ADC12 price increased by 150 yuan/mt to 21,650 yuan/mt. Aluminum prices hit a yearly high on Thursday. Aluminum scrap prices actively followed the rise in aluminum prices, and costs once again pushed up ADC12 prices. The proportion of aluminum scrap in costs now exceeds 90%, deepening industry losses. Downstream demand was generally stable with an upward trend, but the rapid surge in aluminum prices to 22,000 yuan/mt suppressed purchase willingness. Die-casting enterprises with inventory focused on digesting inventories, slowing their procurement pace; enterprises with low inventory maintained rigid restocking, supporting bottom-end demand in the market. Overall, ADC12 prices are expected to hold up well in the short term. Cost support remains relatively solid, and the tight supply of aluminum scrap is difficult to alleviate in the short term, making raw material prices more likely to rise than fall. Demand side shows some resilience, coupled with low industry inventory, just-in-time procurement will provide a floor for prices. However, current aluminum prices are already at yearly highs, and downstream acceptance has declined somewhat, which may limit further upside room for prices.

Aluminum Market Summary:The end of the prolonged US federal government shutdown removed an uncertainty risk for the external economy, slightly easing market sentiment. Domestically, the core positive factor is the comprehensive strengthening of leading economic indicators in October, with a rise in offline consumption heat, particularly a dual increase in the operating rate and workload for infrastructure MoM, indicating resilient consumption in downstream aluminum sectors such as construction extrusion and industrial profiles. In addition, although the full exemption of NEV purchase tax is about to end, major automakers are offering "price protection" sales promotions at their own expense, which will stimulate front-load orders in the short term and provide a pulse-like boost to automotive aluminum demand. Overall, the macro front is currently favorable, and fundamentals side, overseas supply expectations are tightening, giving funds momentum to bet on gains. Substantial capital inflows into SHFE aluminum futures are providing further upward momentum for aluminum prices, with the most-traded SHFE aluminum contract breaking above 22,000 yuan/mt. Bearish funds remain on the sidelines, awaiting an opportunity to enter. However, domestic fundamentals do not provide sufficient support for aluminum prices to sustain further sharp gains. This week, the proportion of liquid aluminum pulled back, and persistently high prices are expected to suppress end-use consumption. Downstream processors' sentiment toward purchasing spot cargo remained weak this week. Going forward, it will be necessary to continuously monitor downstream operating rates. In the short term, aluminum prices are expected to continue fluctuating at highs.

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