Cost support combined with demand constraints keeps ADC12 prices moving sideways at high levels [Aluminum Scrap and Secondary Aluminum Weekly Review]

Secondary Aluminum Raw Materials:

China’s domestic aluminum scrap market prices were relatively stable this week, while the scrap-to-primary price difference widened again amid scrap’s struggles to catch up. Price-wise, primary aluminum prices continued to rise, driven by macro sentiment and capital flows. As of August 6, SMM A00 aluminum closed at 23,800 yuan/mt, a notable increase of 170 yuan/mt from last Thursday, while aluminum scrap raw material prices showed limited overall fluctuations. Regarding the price spread, on August 6, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was around 2,240 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was around 1,030 yuan/mt. Secondary aluminum alloy and downstream demand weakened marginally, which, coupled with high inventory of wrought aluminum alloy scrap raw materials like doors and windows in Henan and other regions, impeded the transmission mechanism for aluminum scrap prices, leaving scrap with a notable lack of upward momentum. Affected by the traditional consumption off-season, downstream cast aluminum alloy enterprises’ operating rates remained low, order sizes shrank, and the aluminum scrap market lacked substantive support. Looking ahead, the supply-demand mismatch pattern will be difficult to reverse in the short term. Scrap utilization enterprises will likely maintain their purchasing-as-needed and low inventory strategies. Substantive improvement in market trading sentiment will be hard to achieve. Next week, shredded aluminum tense scrap prices based on aluminum content are expected to be under pressure overall, dragged by raw material price stagnation and sluggish downstream demand, with mainstream trading expected to center around 20,200-20,800 yuan/mt.

Secondary Aluminum Alloy:

ADC12 prices moved sideways this week. As of Thursday, SMM ADC12 was at 24,200 yuan/mt, flat WoW. Demand side, the market remains in the traditional high-temperature off-season, with downstream orders generally weak and transactions mediocre; until end-user orders improve significantly, the demand side will continue to limit ADC12's upside room. Notably, aluminum alloy futures strengthened during the week, shifting the futures-to-spot structure from backwardation to parity or even contango. Inquiries from futures and spot trading companies increased notably, and some traders with low inventory have started to purchase. If the futures contango widens further and arbitrage opportunities reopen, it will drive spot purchases, forming some phased support for market transactions. Supply side, the operating rate of leading secondary aluminum industry enterprises was stable MoM at 49.4% this week, still at a low level for the period. Invoicing policies in some regions showed marginal easing, but the limited quota offered no obvious boost to enterprise production. Combined with the impact of the high-temperature off-season, short-term operating rates are unlikely to see a significant increase. Inventory-wise, the social inventory of domestic cast aluminum alloy ingots fell to 24,000 mt, destocking for ten consecutive weeks. However, the withdrawal this week was only 200 mt, with the pace slowing notably and the momentum of warehouse withdrawals continuing to weaken. In August, a shift from destocking to inventory buildup is possible. On the import front, overseas ADC12 offers rose to $3,050-3,190/mt, with immediate import losses widening to around 800 yuan/mt, and the import window remained closed. In summary, the ADC12 market will likely continue its "strong cost support, weak demand recovery" pattern in the short term, with prices mainly consolidating sideways. Future focus should be on aluminum price trends, changes in the futures-to-spot arbitrage window, and the pace of downstream demand recovery.