Cost Support and Off-Season Pressure Coexist, Secondary Aluminum Prices Continue to Move Sideways [Aluminum Scrap and Secondary Aluminum Weekly Review]

Aluminum Scrap:

This week, the aluminum scrap market continued to see a tug-of-war between cost-supported floors and sluggish off-season demand, with prices moving sideways. The SMM A00 spot aluminum price closed at around 22,950 yuan/mt on July 9. The decline in aluminum scrap was consistently smaller than that in primary aluminum, maintaining its downside resilience. Foshan shredded aluminum tense scrap (priced based on aluminum content) rose 250 yuan/mt WoW. On the price spread side, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan stood at 2,011 yuan/mt on July 9, and the price difference between A00 aluminum and shredded aluminum tense scrap was at 697 yuan/mt, stabilizing slightly from their historically low levels last week but still holding at extremely low levels. The tightening enforcement of the reverse invoicing policy provided a floor, leaving the logic that aluminum scrap is more likely to rise than fall intact. Supply-side constraints continued to intensify. The impact of the reverse invoicing policy deepened further, with reports emerging that Shandong suspended reverse invoicing from July. Small and medium-sized scrap utilization enterprises in Anhui, Jiangxi, Hubei, and other regions saw spreading production cuts and suspensions, making compliant, invoiced aluminum scrap increasingly scarce. On the import front, the earlier price spread inversion between Chinese and overseas markets led to a scarcity of high-quality overseas cargoes. With a 1-3 month shipping lag, port arrivals from June to August stayed low. Meanwhile, the UAE's aluminum scrap export ban and the EU's tariff hike further tightened overseas aluminum scrap supply. Next week, the aluminum scrap market is expected to continue consolidating within a narrow range, constrained by demand and supported by costs. Mainstream transaction prices for shredded aluminum tense scrap (priced based on aluminum content) are expected to center around 19,900-20,500 yuan/mt. The pullback in spot primary aluminum prices limited the room for further narrowing of price spreads. The cost advantage of aluminum scrap over primary aluminum is unlikely to disappear in the short term, and demand-side price support for aluminum scrap remains.

Secondary Aluminum Alloy:

This week, SMM ADC12 prices continued to drift higher, accumulating a 100 yuan/mt WoW increase to 24,100 yuan/mt. On the cost side, tight tax invoices and insufficient compliant aluminum scrap supply kept enterprise procurement costs high, squeezing profit margins and strengthening producers' willingness to hold prices firm. Market attention on substituting aluminum scrap with primary aluminum to produce ADC12 grew recently, but this route lacked overall economic viability. It was more of a temporary workaround for enterprises facing invoice shortages rather than a cost-driven proactive substitution. This week, primary aluminum prices strengthened WoW, further narrowing the substitution space, and the substitution scale did not expand significantly. Demand-side performance remained weak, with July's traditional off-season characteristics becoming more evident. Downstream enterprises faced insufficient new orders, and end-user restocking willingness was low, keeping overall market transactions sluggish. After raising offer prices early in the week, follow-through on higher-priced deals weakened, and late in the week, some enterprises reported MoM weakening in orders. Insufficient demand constrained room for further price adjustments and became the primary factor suppressing upward price momentum. The supply side continued to contract, but marginal changes warranted attention. This week, the operating rate of secondary aluminum industry leaders fell 0.4 percentage points WoW to 51.4%, mainly due to tax invoice issues and the deepening off-season, as production cuts and suspensions continued. Inventory-wise, China's social inventory of secondary aluminum alloy ingots dropped 9,000 mt WoW to 35,300 mt, marking the sixth consecutive week of destocking. This was mainly due to low operating rates limiting new arrivals into inventory, while a suitable spot-futures price spread spurred aggressive selling by spot traders, accelerating the destocking pace. On the import front, overseas ADC12 offer prices continued to fall to $3,100-$3,200/mt, with some deals reportedly nearing $3,000/mt. The price spread between Chinese and overseas markets continued to normalize. If overseas offer prices keep pulling back, the import profit window could gradually open, at which point increasing import resources would supplement China's tight supply to some extent. Looking ahead, ADC12 prices are expected to move sideways within a range with a steady center. In the short term, with tight aluminum scrap, unresolved tax invoice issues, and low operating rates, cost support remains in play and downside room is limited. However, July's off-season demand is unlikely to improve significantly, and expectations of rising imports add overhead pressure. Overall, amid the tug-of-war between cost-supported floors and demand-constrained ceilings, short-term ADC12 prices are projected to trade within a range of 23,700–24,300 yuan/mt.