Aluminum Alloy Futures Rebound Continuously, Rigid Demand Dominates Spot Aluminum Transactions [SMM Cast Aluminum Alloy Morning Comment]

July 6 SMM Cast Aluminum Alloy Morning Comment

Futures: Last Friday, the most-traded aluminum alloy 2609 contract opened at 22,715 yuan/mt, surged to the session high of 22,800 yuan/mt before quickly diving to 22,655 yuan/mt, then consolidated at lows and recovered, edged up slightly near the close, and finally settled at 22,745 yuan/mt, down 35 yuan/mt, or 0.15%. Trading volume was 2,517 lots, and open interest increased only modestly by 9 lots to 19,096 lots. The overall trend retreated after a rapid rise with solid buying support on dips, suggesting short-term drift higher. Near-term resistance is concentrated in the 22,800-22,835 yuan/mt area.

Spot-Futures Spread Daily: According to SMM data, on July 3, the theoretical premium of SMM ADC12 spot price over the closing price of the most-traded cast aluminum alloy contract (AD2608) at 10:15 am was 1,245 yuan/mt.

Warrant Daily: SHFE data showed that on July 3, total registered warrants for cast aluminum alloy stood at 25,485 mt, down 1,077 mt from the previous trading day.

Aluminum Scrap: Last week, the aluminum scrap market swung wildly with SMM A00 spot aluminum prices, with the notable narrowing of the price difference between A00 aluminum and aluminum scrap. This week, the aluminum scrap market is expected to remain in the doldrums with limited downside room. The mainstream range of shredded aluminum tense scrap priced based on aluminum content is expected to be 19,200-19,800 yuan/mt (tax-exclusive). Supply side, the reverse invoicing policy constraint is unlikely to reverse in the short term, leaving compliantly invoiced cargo in tight supply. Import side, multiple bearish factors are overlapping, and the lagged effect on actual port arrivals will gradually materialize in the coming months, further weakening the inflow of imported aluminum scrap. Demand side, as the off-season deepens, downstream operating rates remain low, end-use demand shows no substantial improvement, and scrap utilization enterprises will likely continue to purchase as needed and maintain low inventories. The price difference between A00 aluminum and aluminum scrap has narrowed to historical lows, significantly eroding the cost advantage of scrap over primary aluminum; if aluminum prices continue to decline, the substitution effect will quickly emerge.

Silicon Metal: Last Friday, oxygen-blown #553 silicon in east China traded near 9,000-9,200 yuan/mt, with #441 silicon near 9,200-9,300 yuan/mt. The most-traded futures contract consolidated near 8,400 yuan/mt. In July, silicon metal production maintained an upward trend as some silicon enterprises in Yunnan and Sichuan resumed production or released output, and a few in Inner Mongolia did the same. With weak fundamentals, the tug-of-war between longs and shorts remained in a stalemate, and prices consolidated at lows.

Markets Outside China: Recently, ADC12 prices outside China have continued to decline, with offers retreating further today to the $3,100-$3,200/mt range. Meanwhile, domestic ADC12 prices held relatively firm on scrap cost support, pushing the price spread between Chinese and overseas markets to continue repairing and import losses to narrow further. Currently, import ADC12 losses stand at about 1,087 yuan/mt, pulling back to levels seen in early March. If domestic prices stay high while overseas markets remain under pressure and fall further, the inversion between Chinese and overseas prices is expected to narrow further, potentially opening a window for import profits.

Summary: Last Friday, ADC12 market offers largely continued to be raised, with SMM ADC12 price up 200 yuan/mt from the previous day to 24,000 yuan/mt. With spot aluminum prices and aluminum alloy futures rebounding for several sessions, cost support strengthened further, enterprises showed significantly greater motivation to follow the hikes, and market sentiment recovered somewhat. Demand side, downstream orders have yet to show obvious improvement, remaining generally stable; some enterprises reported that order-taking since July has changed little, and the market is still dominated by just-in-time procurement. Therefore, the current rise in ADC12 prices reflects more of a cost-push dynamic rather than a noticeable recovery in demand. Against the backdrop of tight aluminum scrap supply and high costs, ADC12 prices are expected to hold up well in the short term, but the extent of further sustained uptrend will depend on the actual capacity of end-use demand to absorb higher prices.

[Data Source Statement: Data other than public information are all processed by SMM based on public information, market communication, and SMM’s internal database models, for reference only, and do not constitute investment advice.]