Tightened compliance regulations push up costs, ADC12 prices drift higher [Aluminum Scrap and Secondary Aluminum Weekly Review]

Aluminum scrap:

This week, China's aluminum scrap market prices followed the decline before partially rebounding, with the center pulling back alongside primary aluminum. As of September 17, SMM A00 aluminum prices closed at 24,180 yuan/mt, down 380 yuan/mt from 24,560 yuan/mt last Thursday, while domestic aluminum scrap prices followed the decline by a relatively limited margin. In terms of price spreads, on September 17, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan stood at approximately 2,468 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap stood at approximately 1,247 yuan/mt, with the aluminum tense scrap price spread narrowing further WoW. On the supply side, the tight raw material supply pattern remained unchanged, and the scarcity of compliant, invoiced aluminum scrap continued to rise. Notably, tax audits in central China continued to escalate, with the sharp drop in regional aluminum scrap supply set to cause significant disruption to aluminum scrap circulation. On the import side, this week, imported shredded aluminum prices at Ningbo port were raised from 21,370 yuan/mt to 21,470 yuan/mt (tax inclusive), while Tianjin port prices rose from 21,420 yuan/mt to 21,520 yuan/mt (tax inclusive). On the demand side, the cast aluminum alloy "September peak season" fell short of expectations, with demand yet to see substantial release. End-user orders improved only slightly from the off-season, without forming concentrated restocking. Demand for wrought aluminum alloy was moderate, and in-factory aluminum scrap inventory was relatively ample. The aluminum scrap market is expected to continue to consolidate on a strong note. On the supply side, the impact of tax audits continues to spread. If aluminum scrap yards slow down shipments, circulating supply will tighten again, providing strong support for aluminum scrap prices. Going forward, close attention will remain on the chain reactions of tax audits across the aluminum scrap industry chain and changes in orders at scrap utilization enterprises.

Secondary aluminum alloy:

This week, ADC12 market prices initially fell before rebounding, with a cumulative weekly increase of 150 yuan/mt. Today, the SMM ADC12 average price closed at 24,350 yuan/mt. The cost side was the core driver of this week's market. Prices of raw materials such as aluminum scrap remained high overall, and procurement difficulties continued to intensify. In particular, supervision of reverse invoicing in regions such as Henan and Jiangxi has tightened significantly recently, with related business suspended or subject to strengthened verification in some areas. Enterprises have become more reliant on compliant supply sources, but compliant aluminum scrap procurement prices are on the high side, driving overall raw material costs further upward and providing strong upward pressure on ADC12 prices. Demand-side improvement remained limited overall, with the peak season effect still in a slow realization phase. Downstream procurement was primarily need-based. After prices pulled back slightly early in the week, some demand was released, but no clear concentrated restocking emerged. End-user orders improved from the off-season, but "September peak season" demand has yet to see substantial release. On the supply side, the operating rate at secondary aluminum industry leaders edged up 0.6 percentage points WoW to 53.3% this week, reflecting a slight recovery in production willingness driven by marginal demand improvement, though the overall increase was limited. On the import side, overseas ADC12 offers edged up to $3,100–3,200/mt, but the increase was weaker than domestic prices. Combined with a stronger yuan, import losses narrowed rapidly to within 200 yuan/mt, approaching the break-even line. Import supply replenishment will need to be monitored going forward. In the short term, ADC12 prices are expected to continue to consolidate on a strong note. On the cost side, tax invoice compliance supervision remains a key marginal variable. If reverse invoicing verification continues to tighten and coverage expands further, against the backdrop of tight compliant aluminum scrap supply, the procurement cost center will shift upward, providing more solid support below prices. On the demand side, if peak season orders are released further, prices are likely to hold up well; if demand improvement remains limited, high costs and weak demand may still create a tug-of-war, with prices continuing to consolidate at highs. Overall, short-term support below prices is relatively strong, and the opening of upside room still depends on further increases in compliant raw material costs and the actual realization of peak season demand.