The Price Spread Between AL and AD Contracts Breaks Through the 1,000 Yuan Mark, Further Widening [SMM Cast Aluminum Alloy Morning Comment]

December 5 SMM Cast Aluminum Alloy Morning Comment

Futures: The most-traded cast aluminum alloy 2602 contract opened higher overnight, hitting a high of 21,200 yuan/mt before pulling back, then fluctuated upward and closed at 21,175 yuan/mt, up 0.5% from the previous close. It has shown an upward trend with fluctuations recently, closing with a small bullish candlestick last night, with the price above short-term moving averages. Open interest increased by 94 lots, as bulls increased positions slightly, while trading volume decreased somewhat, indicating cautious market sentiment.

Basis Daily: According to SMM data, on December 4, the SMM ADC12 spot price showed a theoretical premium of 590 yuan/mt against the closing price of the most-traded cast aluminum alloy contract (AD2601) at 10:15.

Warrant Daily: SHFE data showed that on December 4, the total registered warrants for cast aluminum alloy stood at 66,164 mt, an increase of 1,607 mt from the previous trading day. By region: Shanghai (4,757 mt, unchanged MoM), Guangdong (21,133 mt, up 737 mt MoM), Jiangsu (11,509 mt, up 570 mt MoM), Zhejiang (22,037 mt, up 389 mt MoM), Chongqing (6,308 mt, unchanged MoM), and Sichuan (420 mt, up 300 mt MoM).

Aluminum scrap: On Thursday, spot primary aluminum prices rose significantly from the previous trading day, with SMM A00 aluminum closing at 22,020 yuan/mt, and the aluminum scrap market followed the increase. Entering December, downstream demand for aluminum scrap showed clear divergence. Demand for scrap used in cast aluminum alloys remained stable with a slight increase, providing more support for consumption. In Henan, enhanced year-end environmental protection inspections and transport restrictions affected delivery efficiency. Meanwhile, some scrap utilization enterprises reported high inventories of extrusion scrap accumulated during the peak season, with insufficient orders on hand to hedge raw material inventories, leading to a temporary slowdown in procurement of extrusion scrap. Yesterday, baled UBC was quoted at 16,400-16,900 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was quoted at 18,400-18,900 yuan/mt (ex-tax). Baled UBC prices rose 100 yuan/mt MoM, while clean tapping aluminum wire, mixed aluminum extrusion scrap free of paint, mechanical casting aluminum scrap, scrap motorcycle wheel, and mixed aluminum tense scrap prices increased 200 yuan/mt MoM. Regarding the price difference between A00 aluminum and aluminum scrap, on December 4, the price difference between A00 aluminum and shredded aluminum tense scrap closed at 1,749 yuan/mt, and the price difference for bare bright aluminum wire in Jiangsu was 891.3 yuan/mt. The aluminum scrap market is expected to hover at highs next week, guided primarily by primary aluminum price trends, coupled with impacts from environmental protection-driven production restrictions and transport constraints in central China, keeping market sentiment cautious. The tug-of-war between sellers and buyers continues, requiring close monitoring of primary aluminum fluctuations, environmental protection policies, and downstream procurement pace, while staying alert to risks of a pullback from highs.

Silicon Metal: (1) Prices: Silicon metal prices remained range-bound with a weak bias this week, with SMM oxygen-blown #553 silicon in east China at 9,400-9,500 yuan/mt and #441 silicon at 9,600-9,700 yuan/mt. The Si2601 futures contract closed at 8,910 yuan/mt, and the decline in futures stimulated an increase in downstream buying demand. (2) Social Inventory: According to SMM statistics, the total social inventory of silicon metal in major regions stood at 558,000 mt on December 4, an increase of 8,000 mt WoW. This included 131,000 mt in general social warehouses, up 2,000 mt WoW, and 427,000 mt in social delivery warehouses (including unregistered warrants and spot inventory portions), an increase of 6,000 mt WoW (excluding Inner Mongolia, Ningxia, Gansu, etc.).

Overseas Market: The current overseas ADC12 quotation range was $2,600–2,640/mt. Due to the rapid price surge in the domestic market, the immediate import loss narrowed significantly to around 200 yuan/mt.

Inventory: According to SMM statistics, the social inventory of secondary aluminum alloy ingots in mainstream domestic consumption areas was 55,300 mt on December 4, a decrease of 335 mt from last Thursday.

Summary: Yesterday, the gain in the most-traded casting aluminum futures contract narrowed significantly compared to SHFE aluminum futures, and the price spread between ADC12 and AL widened to 990 yuan/mt. Currently, registered warrants for aluminum alloy are at high levels, while traders faced difficulties in selling goods under high aluminum prices, leading to weak destocking and putting pressure on the futures trend. Spot side, ADC12 prices actively followed the rise, increasing by 200 yuan/mt to 21,700 yuan/mt, and the inverted spread with A00 aluminum expanded again. Cost side, aluminum scrap prices followed aluminum prices and rose sharply today, while copper prices reached a new high above 91,245 yuan/mt, leading to continuously rising raw material costs. The cost proportions of aluminum scrap and copper auxiliary materials continued to increase, with cost remaining the main driver for ADC12 price increases. Demand side, aluminum prices hitting the yearly peak suppressed short-term procurement pace among downstream users. Some die-casting enterprises saw profit margins shrink due to cost pressure, and some fell into losses, leading to a decline in operating rates. However, end-user demand for pushing annual targets at year-end still supported industry resilience. Overall, ADC12 prices are expected to continue fluctuating at highs in the short term.

[Data Source Statement: Except for public information, other data are processed by SMM based on public information, market communication, and SMM's internal database model, for reference only and do not constitute decision-making advice.]