Weakening cost support coupled with insufficient peak-season realization drove ADC12 price center lower [Aluminum Scrap and Secondary Aluminum Weekly Review]

Aluminum scrap:

This week, the aluminum scrap market fluctuated at highs, with the price center shifting lower alongside primary aluminum but showing notable resilience. As of October 15, SMM A00 aluminum prices closed at 23,260 yuan/mt, down 500 yuan/mt from last Thursday. The price difference between A00 aluminum and aluminum scrap narrowed significantly: on October 15, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was approximately 2,155 yuan/mt, narrowing 337 yuan/mt WoW; the price difference between A00 aluminum and shredded aluminum tense scrap was approximately 711 yuan/mt, narrowing 615 yuan/mt WoW. Supply side, tax audits in central China continued to deepen, making compliant invoiced aluminum scrap increasingly scarce, with suppliers holding invoices showing strong willingness to hold prices firm. Competition among enterprises was intense, with some only able to issue 20% of their invoice quotas, keeping effective supply tight. On imports, this week prices of imported shredded aluminum at Ningbo Port and Tianjin Port were recorded at 20,970 yuan/mt (tax inclusive) and 21,020 yuan/mt (tax inclusive), respectively, down 100 yuan/mt from last week. In the short term, the aluminum scrap market is expected to hold up well, with limited downside. Supply side, the scope and intensity of tax audits remain the key variable, and the tight supply of compliant invoiced cargoes is unlikely to ease. Demand side, downstream scrap utilization enterprises are operating at moderate rates during the peak season, and with supply and demand both tight, price support is expected to strengthen further. Additionally, the price difference between A00 aluminum and aluminum scrap has narrowed again to historical lows, weakening the cost advantage of aluminum scrap and bringing the issue of primary aluminum substitution back to the table. Going forward, focus on the spread of tax audits, changes in invoice quotas across regions, and downstream operating pace.

Secondary aluminum alloy:

This week, ADC12 prices rose initially before falling, gaining 100 yuan/mt to 24,500 yuan/mt early in the week, then pulling back 200 yuan/mt on Thursday to 24,300 yuan/mt, with the overall price center edging lower. Cost side, fluctuations in aluminum and copper prices this week drove corresponding adjustments in raw material costs, with aluminum scrap prices holding firmer than primary aluminum. Meanwhile, stricter invoice supervision continued to affect the circulation of compliant aluminum scrap, providing some support to ADC12 prices. Currently, ADC12 prices are above A00 aluminum prices, and some enterprises are considering increasing the proportion of wrought aluminum alloy scrap to optimize production costs. Additionally, the pullback in aluminum prices has to some extent eased raw material purchasing pressure on enterprises. If aluminum prices remain weak and aluminum scrap prices follow with larger declines, cost support will weaken. Demand side, the traditional "October peak season" has underperformed expectations, with limited improvement in downstream orders and purchases still largely need-based. The recent price pullback has prompted some downstream buyers to restock at lower prices, but end-use demand has yet to show substantive improvement, and purchasing enthusiasm remains constrained by price trends and order expectations, limiting the demand side's ability to boost prices. Supply side, after the National Day holiday, enterprises gradually resumed production. This week, operating rates at industry leaders rebounded 6.5 percentage points from pre-holiday levels to 52.1%, though overall operating levels remain below the same period last year. As of October 15, domestic social inventory of cast aluminum alloy ingots fell to 25,200 mt, down 5,800 mt MoM, with the pace of destocking widening. After the holiday, cast aluminum alloy futures prices fell more than spot prices, driving the futures-spot basis wider and prompting some suppliers to increase shipments, accelerating the drawdown of social inventory. On imports, overseas ADC12 offers pulled back slightly to $3,050-3,130/mt, with import break-even still near the break-even line. Looking ahead, ADC12 prices are expected to consolidate in a narrow range in the short term, with the core range at 24,000-24,600 yuan/mt. The current weakness in aluminum prices is fueling bearish market sentiment, while limited improvement in downstream orders leaves spot prices lacking upward momentum. However, relatively firm aluminum scrap prices, tight supply of compliant raw materials, ongoing destocking of social inventory, and limited import replenishment continue to provide some support to prices. Going forward, focus on aluminum and aluminum scrap price trends, changes in market sentiment, and improvements in downstream orders and purchasing demand.