A00-Aluminum Scrap Spread Narrows Sharply[Weekly Review of Aluminum Scrap and Secondary Aluminum]

Aluminum scrap: 

This week, the aluminum scrap market followed the wild swings of SMM A00 spot aluminum prices, with the significant narrowing of the price difference between A00 aluminum and aluminum scrap standing out. As of July 2, SMM A00 spot aluminum prices closed at 22,540 yuan/mt, down 310 yuan/mt from last Thursday. The supply side remained tight, as supervision over the "reverse invoicing" policy tightened further. Small and medium-sized scrap utilization enterprises in Anhui, Jiangxi, Hubei, and other regions saw spreading production cuts and suspensions, while Shandong also circulated news of suspending reverse invoicing from July onward, further increasing the scarcity of compliant, invoiced aluminum scrap. On the price difference between A00 aluminum and aluminum scrap, the Foshan price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint stood at 1,929 yuan/mt on July 2, while the price difference between A00 aluminum and shredded aluminum tense scrap was 621 yuan/mt, narrowing by 208 yuan/mt and 539 yuan/mt WoW, respectively. Notably, under the dual pressure of rapidly falling aluminum prices and tight invoice availability, the price difference between A00 aluminum and aluminum tense scrap narrowed sharply. Some cast aluminum alloy enterprises have already started using A00 aluminum ingot as a substitute for aluminum scrap in production. The aluminum scrap market is expected to remain in the doldrums, but the downside room is limited, with mainstream shredded aluminum tense scrap priced based on aluminum content expected to fluctuate between 19,200–19,800 yuan/mt (tax-exclusive). Supply side, the constraints from the reverse invoicing policy are unlikely to ease in the short term, keeping the supply of compliant, invoiced cargo tight; on the import front, the lagged suppression effect of multiple bearish factors on actual port arrivals will gradually emerge in the coming months, further weakening imported aluminum scrap supplementation. Demand side, amid the deepening off-season, downstream operating rates stayed low, end-use demand orders showed little sign of substantial improvement, and scrap utilization enterprises are highly likely to continue purchasing as needed and maintain low inventory strategies. The price difference between A00 aluminum and aluminum scrap has narrowed to historical lows, significantly eroding the economic advantage of aluminum scrap over primary aluminum. If aluminum prices continue to decline, the substitution effect will accelerate.

Secondary aluminum alloy:

This week, China’s ADC12 market largely moved sideways, with spot prices showing strong resilience. The SMM ADC12 price fell just 50 yuan/mt WoW to 23,800 yuan/mt. Cost side, aluminum scrap purchase prices stayed high due to tight tax invoices, insufficient supply of compliant aluminum scrap, and traders holding back from selling, putting enterprises' raw material procurement under continued pressure. During the week, aluminum prices pulled back sharply, drawing market attention to the feasibility of substituting primary aluminum for aluminum scrap—some enterprises indicated they would moderately increase the proportion of A00 aluminum added to ease difficulties in sourcing compliant aluminum scrap and the shortage of invoices. Demand side, the downstream sector maintained off-season characteristics. Die-casting enterprises saw limited new orders, and end-use demand from sectors such as automobiles was sluggish. Moreover, the falling price environment did not trigger restocking at low levels downstream, with purchasing still largely need-based. Demand provided little support for prices. Supply side, the operating rate among leading secondary aluminum enterprises dropped another 0.5 percentage points WoW to 51.8%, mainly due to weak orders, high costs, and insufficient tax invoices, further contracting industry supply. Social inventory fell by 6,100 mt WoW to 44,300 mt, marking the fifth consecutive week of destocking at an accelerating pace. Looking ahead, ADC12 is expected to maintain range-bound, sideways movement. Elevated costs and persistent destocking are solidifying downside support, but demand has yet to show clear improvement, and upward drivers are also insufficient. On spreads, the current ADC12-A00 price spread has widened to over 1,000 yuan. Considering that the cost support logic for aluminum scrap is unlikely to change in the short term, while primary aluminum faces greater macro front disturbance, ADC12’s relative resilience against declines versus A00 will persist, and the spread between the two is expected to stay high, with further widening possible. In the near term, a pattern of coexisting cost support and weak demand will continue, with key focus on the pace of aluminum scrap supply recovery, tax invoice policy changes, and improvements in downstream orders.