Concerns over Liquidity Tightening Ease Marginally, Aluminum Prices Are Under Pressure at High Levels in the Short Term [SMM Aluminum Morning Meeting Minutes]

8.14 SMM Aluminum Morning Meeting Minutes

Futures: SHFE aluminum closed at 24,010 yuan/mt, down 0.62%, with the price breaking below MA5 (around 24,160) but holding slightly above MA10 (23,988.5); short-term moving average support faces a test, while medium-term MA30 (23,469.5) and MA60 (23,699.67) remain in bullish alignment. MACD DIF=208.6, DEA=143.02; the golden cross remained intact, but the histogram narrowed to 131.17 (previous day 192.2), with bullish momentum weakening for a third consecutive day. Trading volume expanded slightly to 53,000 lots, and market divergence increased somewhat. The suggested core trading range for SHFE aluminum is 23,800-24,400. LME aluminum closed at $3,235.5/mt, down 0.08%; the price broke below MA5 (3,296.9) and MA10 (3,271.2) but remained above MA30 (3,200.3). Short-term moving averages have turned into resistance, while medium-term support remains intact. The MACD histogram narrowed to 20.22 (previous day 41.42), with bullish momentum continuing to weaken. The suggested core trading range for LME aluminum is 3,200-3,280.

Macro front: US July PPI was flat MoM, while YoY growth slowed to 4.7% from 5.5% in June; core PPI rose 0.2% MoM, below the expected 0.3%, and its YoY increase fell to 4.2%. The data showed US inflation pressures continued to ease, and traders further lowered expectations for a US Fed interest rate hike in September; divisions within the US Fed over the next monetary policy path became more public. Cleveland Fed President Hammack reiterated her hawkish stance, saying action is needed now and warning of financial stability risks from US Treasury leverage and AI bubbles. Richmond Fed President Barkin, by contrast, supported keeping interest rates unchanged, arguing that inflation mainly stemmed from temporary shocks, but warned that AI investment and supply chains could bring lasting price pressures.

Fundamentals: Supply side, China's weekly aluminum production was basically stable over the past week, and the proportion of liquid aluminum rose 0.19 percentage point MoM. Outside China, with production ramp-up at new projects and production resumptions continuing to advance, aluminum supply is expected to keep rising. However, the global aluminum ingot destocking trend is unlikely to change in the short term. Demand side, downstream processing industries are in the traditional consumption off-season, with overall operating rates under pressure; aluminum billet processing fees have pulled back, weakening substitution demand for aluminum ingots. Inventory side, China's aluminum social inventory continued its destocking trend this week. As of Thursday this week, China's aluminum ingot social inventory fell by 19,000 mt from Monday to 898,000 mt, and by 35,000 mt from the previous Thursday. Aluminum ingot inventory is expected to continue destocking in the short term, but the destocking pace is expected to slow in the second half of the month. Overseas supply side, UAE's EGA semi-annual results report disclosed the production resumption progress at the Al Taweelah aluminum smelter, which was shut down after an attack on March 28. Of the plant’s 1,262 pots, 18% have been restarted. Production is expected to recover to pre-incident levels in Q1 2027. Production at alumina refineries fell significantly YoY in H1 2026, and capacity recovered to 50% of pre-incident levels in early July.

Primary Aluminum Market:In early trading, the SHFE aluminum 2608 contract center moved lower from yesterday, market purchasing sentiment improved further, and trading among traders was relatively active. Today, spot premiums for SHFE aluminum mainly traded between parity against the 08 contract and the 08 contract plus 10 yuan/mt, while the market traded against the 09 contract at discounts of 30 yuan/mt to 20 yuan/mt. In east China today, the shipment sentiment index was 3.18, up 0.01 DoD; the purchasing sentiment index was 3.30, up 0.04 DoD. Aluminum futures pulled back somewhat. Today, purchase willingness among downstream processing enterprises in the central China market rebounded slightly, and overall market trading volume recovered. Large traders remained notably inclined to hold prices firm and hold back from selling, and quoted price differences between large and small traders were wide. In the end, actual transaction prices in the central China market centered around discounts of 110-150 yuan/mt against the SHFE aluminum 09 contract. In the central China market today, the shipment sentiment index was 3.06, down 0.03 DoD; the purchasing sentiment index was 2.95, down 0.02 DoD. Today the futures market turned sharply lower, and the weak spot market in south China remained unchanged. Inventory accumulated again after four months, which weighed somewhat on market outlook expectations, and bearish sentiment gradually emerged. Against the backdrop of both absolute prices and the spot-futures spread weakening, holders briefly failed to hold prices firm and then broadly lowered prices and sold more to liquidate in a timely manner; mainstream quotes were at discounts of 20 yuan/mt to parity, and supply was as abundant as during yesterday’s sharp rally. Demand side, downstream buyers gradually bought on dips from the sidelines, with limited enthusiasm; traders still bought less and sold more, purchasing only as needed, which created a notable drag. Both supply and demand were weak, and overall trading was lackluster. Spot transaction prices were concentrated at premiums of 65-105 yuan/mt against the SHFE aluminum 2608 contract.

Aluminum Scrap:Today, the SMM A00 spot aluminum price closed at 24,120 yuan/mt, down 250 yuan/mt from the previous trading day. China’s aluminum scrap market broadly followed the decline, with aluminum tense scrap prices down 100 yuan/mt, while bare bright aluminum wire, aluminum extrusion scrap free of paint, and similar materials fell 200 yuan/mt in tandem. In terms of the price difference between A00 aluminum and aluminum scrap, on August 13 the Foshan price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint was approximately 2,310 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was approximately 1,210 yuan/mt, both widening again WoW. With primary aluminum prices continuing to rise, aluminum scrap price fluctuations were relatively limited, and the price transmission mechanism was obstructed, mainly constrained by two factors: first, downstream secondary aluminum alloy demand weakened marginally; amid high-temperature holidays and the traditional consumption off-season, operating rates at cast aluminum alloy enterprises continued to decline, and order volumes shrank; second, high inventories of wrought aluminum alloy scrap materials such as doors and windows in Henan and other regions weakened the elasticity of aluminum scrap price increases. Additionally, supply-side constraints from the “reverse invoicing” policy persist, and the scarcity of compliant, invoice-backed aluminum scrap provides bottom support for aluminum scrap prices. The import window has recently improved from earlier levels, with traders’ inquiries and purchasing interest picking up; arrivals are expected to land gradually from mid-to-late August, likely improving import supply in the near term. The current high-temperature holiday period has not yet ended, and downstream cast aluminum alloy enterprises are maintaining low operating rates. Order recovery still needs time. Scrap utilization enterprises are likely to continue purchasing as needed and keeping inventories low, while a concentrated restocking phase still has to wait. Notably, the price difference between A00 aluminum and shredded aluminum tense scrap has widened to 1,210 yuan/mt, and aluminum scrap’s economic advantage over primary aluminum has recovered somewhat. The aluminum scrap market is expected to continue to move sideways in a high and narrow range in the near term, with weak end-use demand remaining the core factor suppressing prices.

Secondary Aluminum Alloy:Spot: Today, aluminum alloy market quotes were broadly lower, with the SMM ADC12 price lowered by 200 yuan/mt. The pullback in futures further pressured spot market sentiment, and enterprises generally followed by lowering their quotes. Downstream demand remains in the off-season, with some enterprises still on high-temperature holidays or operating at reduced loads; end-use orders and procurement demand are weak, and the spot market lacks sustained upward momentum. However, the cost side still provides some support, as aluminum scrap prices remain high overall, leaving enterprises with limited room for further price cuts. The market lacks demand-driven upside, while the downside is constrained by costs. ADC12 prices are expected to continue to move sideways in a range in the near term.

Overall Outlook:On the macro front, US July PPI and core PPI both declined YoY, coming in below both expectations and previous readings. Inflation pressure eased further, while market expectations for a US Fed interest rate hike in September were lowered and concerns about liquidity tightening eased marginally. On the fundamentals side, aluminum ingot inventory continues to destock, but the destocking pace is expected to slow in the second half of the month; production resumptions at Middle East aluminum smelters have quickened compared with earlier market expectations, and the supply tightness premium priced in earlier now faces pullback pressure. Although macro recovery and continued destocking in the first half of August supported aluminum prices, market sentiment has turned, and aluminum prices are expected to remain under pressure at high levels in the near term, with upside room capped to some extent by production resumption expectations.

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