Cost Support and Weakening Marginal Demand Intertwined, ADC12 Price Fluctuates at Highs in the Short Term[Weekly Review of Aluminum Scrap and Secondary Aluminum]

This week, the domestic aluminum scrap market fluctuated in tandem with primary aluminum, with the price center hovering at highs. As of December 11, the SMM A00 aluminum price closed at 21,890 yuan/mt, down 130 yuan/mt WoW from last Thursday. Major categories of aluminum scrap followed the adjustment, with shredded aluminum tense scrap (including freight) quoted at 18,100-18,500 yuan/mt (tax excluded) and baled UBC at 16,300-16,800 yuan/mt (tax excluded). On one hand, some scrap utilization enterprises reported high inventories of wrought aluminum scrap collected during the peak season, lacking sufficient orders on hand to hedge against raw material inventories, leading to a temporary slowdown in procurement pace for related scrap. Additionally, environmental protection-driven production restrictions in Chongqing affected the operating rates of alloy enterprises, causing a slight weakening in downstream demand for aluminum scrap. On the other hand, the imported aluminum scrap market faced tight raw material supply, with traders mostly maintaining low inventory levels. However, a narrow mid-week correction in aluminum prices led to a decline in scrap offers, prompting some aluminum scrap suppliers to hold prices firm and be reluctant to sell. Downstream alloy enterprises also faced tight supply of recycled aluminum raw materials. Regarding the price spread between primary metal and scrap, the price difference between A00 aluminum and shredded aluminum tense scrap closed at 1,946 yuan/mt on December 11, while the price difference for bare bright aluminum wire in Jiangsu was 900.6 yuan/mt. Next week, the aluminum scrap market is expected to maintain high volatility, with the mainstream range for shredded aluminum tense scrap (including freight) forecast at 18,200-18,900 yuan/mt (tax excluded). The tight supply pattern is difficult to change, and shortages of imported raw materials are providing a floor for prices. Demand is constrained by dual factors: the implementation of environmental protection-driven production restriction policies in Henan and Chongqing, and the approaching year-end, as the end-use market's sales push phase is expected to conclude. Scrap utilization enterprises generally exhibit fear of high prices, significantly suppressing procurement demand for aluminum scrap, resulting in an overall weak demand side. Furthermore, the pattern of high volatility in primary aluminum prices is difficult to reverse in the short term. Coupled with insufficient momentum in downstream demand for aluminum scrap, market participants' sentiment is predominantly cautious. Overall, the tug-of-war between sellers and buyers in the aluminum scrap market is expected to continue next week. Close attention should be paid to fluctuations in primary aluminum prices, the enforcement of environmental protection policies, and changes in the procurement pace of downstream enterprises, while remaining vigilant against the risk of a high-price correction.

This week, the secondary aluminum alloy market experienced a dip followed by a rise, maintaining an overall pattern of high volatility. The most-traded cast aluminum alloy futures contract opened at 21,070 yuan/mt at the beginning of the week, dipped, and closed at 20,965 yuan/mt on Thursday. The spot SMM ADC12 price fell 100 yuan/mt WoW from last Friday to 21,600 yuan/mt. On the cost side, although aluminum scrap prices came under pressure due to the transmission of the aluminum price correction, prices remained at relatively high levels due to persistently tight supply, providing bottom support for ADC12 prices. On the demand side, significant volatility in aluminum prices intensified downstream wait-and-see sentiment. Die-casting enterprises became more cautious in procurement, and market trading activity was moderate. Although year-end terminal demand push provided some support, demand already showed signs of marginal weakening. On the supply side, affected by both environmental protection policies and cost pressures, industry operating rates declined. Due to the activation of a heavy pollution weather warning in Chongqing, some local enterprises started production cuts or halts from the 9th. Combined with high raw material costs eroding profits, the operating rate of leading enterprises fell 1.8 percentage points WoW to 59.8%. Operating rates are expected to gradually rebound as environmental protection-related controls are lifted. Regarding inventory, social inventory in mainstream consumption areas stood at 54,700 mt, down 602 mt WoW, marking the third consecutive week of a slow destocking trend. On imports, overseas ADC12 offers this week were concentrated at $2,620-2,640/mt, with the immediate import loss narrowing to around 200 yuan/mt. Overall, the secondary aluminum alloy market is currently influenced by mixed factors: on one hand, the pattern of tight aluminum scrap supply remains unchanged, and although cost support has weakened somewhat, it still provides fundamental support to the market; on the other hand, marginal weakening of demand and high volatility in aluminum prices jointly suppress downstream procurement enthusiasm, while the phased decline in industry operating rates leaves the overall market in a tight supply-demand balance. The ADC12 price is expected to continue fluctuating within a high range in the short term, with limited room for movement in either direction. Subsequent attention should focus closely on the trend of aluminum prices, aluminum scrap supply conditions, and actual changes in downstream orders.