Primary Processing Sector Shows Initial Signs of Marginal Weakening Monday National Aluminum Ingot Inventory Buildup of 25,000 mt[SMM Aluminum Morning Meeting Minutes]

SMM Aluminum Morning Meeting Minutes, 11.17

Futures:During the night session on November 14, the most-traded SHFE aluminum contract opened at 21,835 yuan/mt, reached a highest price of 21,835 yuan/mt and a lowest price of 21,650 yuan/mt, and finally closed at 21,795 yuan/mt, down 0.54%. The night session overall showed a trend of bottoming out. From a technical perspective, SHFE aluminum open interest decreased by over 30,000 lots to over 750,000 lots, the daily candlestick MACD red bars contracted, upward momentum weakened, and the most-traded contract retreated from highs. Combined with the latest highs and lows (the monthly low around 21,160, the high around 22,160), the resistance level is expected to be in the 21,800-22,000 range, and the support level is expected to be in the 21,200-21,500 range. Caution is needed against the risk of a retreat from highs.

Macro Front:Divergence remains within the US Fed regarding whether to cut interest rates, creating significant uncertainty about another rate cut in December. Fed official Lorie Logan stated it is difficult to support a rate cut in December, and providing more preventive support to the labour market via rate cuts is not appropriate. She previously opposed the Fed's rate cut in October due to concerns that inflation was too high and trending upward, and achieving the Fed's 2% target would take too long. Meanwhile, another official, Mary Daly, indicated recent economic data supports a rate cut. Another official, Thomas Barkin, said the risks from further rate cuts might entrench high inflation rather than effectively support the labour market. (Neutral ★) On November 17, the People's Bank of China will conduct 800 billion yuan in outright reverse repo operations via a fixed-amount, interest-rate tender, multiple-price award method, with a tenor of 6 months (182 days). (Bullish ★) Four departments including the Ministry of Commerce issued the "Notice on Further Strengthening the Management of Used Car Exports." It mentions strictly controlling the export of new cars under the name of used cars. (Bearish ★)

Fundamentals:Inventory side, national aluminum ingot inventory recorded 646,000 mt on Monday, an inventory buildup of 25,000 mt WoW. Cost side, the average cost in the aluminum industry recorded 16,090 yuan/mt last Friday, down 7 yuan/mt WoW, while the average industry profit narrowed by 3 yuan/mt to 5,820 yuan/mt. Supply-demand side, supply side, domestic operating aluminum capacity held steady at around 44.06 million mt, the proportion of liquid aluminum decreased by 0.5 percentage points WoW, recording 77.25% as of last Thursday; demand side, the operating rate of leading domestic aluminum downstream processing enterprises recorded 62.0% last week, up 0.4% WoW, mainly supported by a slight rebound in the operating rates for cables, primary alloy, and secondary alloy; however, in the primary processing sector, it is understood that operating conditions in some segments have shown signs of marginal weakening, aluminum rod enterprises have seen concentrated production cuts, and the proportion of local alloying of liquid aluminum has decreased.

Primary Aluminum Market:SHFE aluminum mainly fluctuated downward in the morning session. During the first trading period, it mainly fluctuated around 21,900 yuan/mt; during the second trading period, SHFE aluminum fell further, finally closing at 21,825 yuan/mt. East China, aluminum prices pulled back from above 22,000 yuan/mt, buying sentiment improved slightly, and downstream processors purchased as needed approaching the weekend. Actual transactions were at a discount of 10 yuan/mt to a premium of 10 yuan/mt against the SMM average price. Last Friday, the selling sentiment index in the East China market was 3.08, down 0.01 WoW; the purchasing sentiment index was 2.87, up 0.01 WoW. Last Friday, SMM A00 aluminum closed at 21,910 yuan/mt, down 10 yuan/mt from the previous trading day, at parity against the November contract, at a discount of 30 yuan/mt against the December contract, flat from the previous trading day. Last Friday, trading sentiment in the Central China market remained weak, futures prices moved lower, sellers' selling sentiment rebounded slightly, but downstream purchasing remained dominated by long-term contract rigid demand. Final actual transaction prices ranged from a discount of 30 yuan/mt to parity against the Central China price. Last Friday, the selling sentiment index in the Central China market was 2.91, flat WoW; the purchasing sentiment index was 2.80, down 0.03 WoW. SMM Central China closed at 21,760 yuan/mt, down 20 yuan/mt from the previous trading day, at a discount of 150 yuan/mt against the November contract, at a discount of 180 yuan/mt against the December contract, down 10 yuan/mt from the previous trading day. The Henan-Shanghai price spread was -150 yuan/mt, down 10 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials: Last Friday, spot primary aluminum prices fluctuated slightly compared to the previous trading day; SMM A00 spot closed at 21,910 yuan/mt, while aluminum scrap market prices were flat from last Thursday. With 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 showing signs of weakening. However, tight market supply remained the main theme, purchase prices hovered at highs, but the sustainability of high levels needs consideration. Last Friday, baled UBC aluminum scrap was quoted centrally at 16,600-17,100 yuan/mt (ex-tax), shredded aluminum tense scrap (priced based on aluminum content) was quoted centrally at 17,800-18,500 yuan/mt (ex-tax). Baled UBC was up 50 yuan/mt from last Thursday, making up for the previous day's gains; clean tapping aluminum wire, shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, mechanical casting aluminum scrap, and aluminum shavings were flat WoW. This week, the aluminum scrap market is expected to hover at highs, with the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) likely fluctuating between 17,800-18,600 yuan/mt. If primary aluminum prices stabilize above 22,000 yuan/mt, it will continue to support aluminum scrap prices, but be alert to the risk of retreat after rapid rise. Supply side, the tight supply-demand situation in the aluminum scrap market is difficult to change in the short term, but as primary aluminum prices fluctuate at highs, fear of high prices may intensify, and willingness to follow price increases in some regions may weaken. Overall, the market will continue the tug-of-war between sellers and buyers at highs; it is recommended to closely track primary aluminum price trends, environmental protection policy changes, and downstream enterprises' purchasing strategy adjustments, and be alert to high-level pullback risks.

Secondary Aluminum Alloy: Last Wednesday, SMM A00 aluminum spot prices surged by 250 yuan/mt to 21,920 yuan/mt, hitting a new high for the year. In the secondary aluminum market, ADC12 prices rose by 150 yuan/mt to 21,650 yuan/mt. Last Wednesday, aluminum prices reached a new annual high, and aluminum scrap prices actively followed the upward trend, driving up ADC12 costs once again. Currently, aluminum scrap accounts for over 90% of the cost, deepening industry losses. Downstream demand remained stable with a slight increase overall, but the rapid surge in aluminum prices to 22,000 yuan/mt dampened purchase willingness. Enterprises with inventory focused on digesting inventories, slowing down their procurement pace; low-inventory enterprises continued to maintain rigid restocking, supporting bottom-level demand. 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 unlikely to ease soon, 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, with current aluminum prices at annual highs, downstream acceptance has declined, potentially limiting further upside room.

Aluminum Market Summary: Overall, the macro front is mixed but generally favorable. Fundamentally, market sentiment remains focused on production cut news from overseas aluminum plants in Iceland and Mozambique, maintaining expectations for tighter overseas supply; domestically, the market is gradually transitioning from the peak season to the off-season. Inventory side, it is expected to enter a fluctuating phase in the short term. Overall, driven by macro tailwinds and capital, aluminum prices surged, but domestic fundamentals lack sufficient momentum to support continued sharp increases. Subsequently, aluminum prices are expected to hover at highs.

[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 to replace independent judgment. Any decisions made by clients are unrelated to SMM.]