The tug-of-war between longs and shorts intensifies, and aluminum alloy moves sideways in the short term [SMM cast aluminum alloy morning comment]

6.8 SMM Cast Aluminum Alloy Morning Comment

Futures: During last Friday’s night session, the most-traded AD2608 contract opened at RMB 23,095/mt, surged to a high of RMB 23,175/mt before pulling back quickly, dipped to a low of RMB 22,780/mt, stabilized and rebounded towards the close, and ultimately settled at RMB 22,965/mt, down 0.65% intraday. Trading volume was 3,919 lots, and open interest stood at 14,531 lots, an increase of 491 lots from the previous trading day. The contract generally showed a trend of hitting resistance after a rally and then bottoming out, moving in the doldrums. Significant resistance was seen at RMB 23,200/mt above, with some support near RMB 22,800/mt below. The daily candlestick chart formed a bearish candlestick with a long lower shadow. The DKX (10) moving average continued its downtrend, and the RSI indicator, after rebounding from the oversold region at a low level, recovered to a neutral zone towards the close, indicating that sentiment has improved somewhat after short-term overselling, but divergence between bulls and bears persists. The market is likely to move sideways in the short term.

Spot-Futures Price Spread Daily: According to SMM data, on June 5, the theoretical price spread of SMM ADC12 spot price over the closing price at 10:15 am for the most-traded AD2607 contract widened to a premium of RMB 735/mt.

Warrant Daily: SHFE data show that on June 5, the total registered warrant volume for cast aluminum alloy was 39,224 mt, a decrease of 575 mt from the previous trading day. By region: Shanghai registered 2,897 mt, unchanged from the previous day; Guangdong registered 9,589 mt, down 363 mt; Jiangsu registered 7,619 mt, down 182 mt; Zhejiang registered 12,057 mt, down 151 mt; Chongqing registered 6,067 mt, up 121 mt; Sichuan registered 995 mt, unchanged from the previous day.

Aluminum Scrap: Last Friday, the SMM A00 price dropped by RMB 10/mt MoM, while the aluminum scrap market was generally stable with quotes unchanged. The supply side, the regulatory crackdown on the "reverse invoicing" policy continued to intensify, as tax rebate cancellations and stricter tax audits in some provinces drove up costs for raw materials with invoices. Some enterprises in regions like Anhui and Jiangxi have already cut or halted production. Warehouse inflows at aluminum scrap distribution centers declined YoY, and tense scrap inventories decreased due to reduced incoming volumes. Currently, high compliance costs in the raw material recycling chain persisted, the availability of invoice-bearing cargoes remained tight, and the scarcity of invoices is a core pillar supporting prices. Additionally, the inverted price spread between domestic and overseas markets amid US-Iran conflict disruptions made imported low-cost, high-quality cargoes scarce, weakening the supplement to the domestic market. The demand side, the off-season effect emerged, with downstream scrap utilization enterprises running at low operating rates, end-use demand order follow-up lacking momentum, and enterprises maintaining a strategy of purchasing as needed and keeping low inventory, with a cautious procurement atmosphere. The aluminum scrap market price is expected to continue its hold-up-well trend at high levels.

Silicon Metal: Last week, SMM oxygen-blown #553 silicon in East China was at RMB 9,100-9,300/mt, and #441 silicon was at RMB 9,300-9,400/mt. The most-traded futures contract fluctuated around RMB 8,700/mt, with the futures price center tilting slightly higher. Silicon suppliers held their quotes firm, while a strong wait-and-see sentiment prevailed downstream, leading to a stalemate in spot silicon metal market transactions. Attention should be paid to supply-demand dynamics, operating rates, and changes in market sentiment.

Markets Outside China: The current import ADC12 offers remained high, quoted in the range of $3,360-3,460/mt. The immediate import loss was about RMB 3,248/mt, meaning the theoretical import window remained closed.

Summary: Last Friday, mainstream ADC12 producers' quotes were generally stable, and the SMM ADC12 price remained flat at RMB 23,900/mt. On one hand, SHFE aluminum and aluminum alloy futures prices moved sideways last Friday, resulting in limited cost fluctuations for aluminum scrap. On the other hand, downstream die-casting enterprises maintained a relatively steady procurement pace, with no significant increase in end-use demand, and market transactions were dominated by restocking as needed. In the short term, however, the tightness in invoice availability and intensified compliance oversight on the cost side is unlikely to ease quickly, keeping raw material and tax-related costs high. If invoice shortages persist on the supply side, the scale of production cuts in the industry will expand further. Coupled with low social inventory and a closed import window, spot circulation volume will find it difficult to increase effectively. Conversely, persistent weakness on the demand side will cap price gains. In the short term, downside room for ADC12 prices is limited, yet upward breakthroughs also lack effective cooperation from the demand side. Prices are expected to move with a generally stable-to-slightly-stronger trend.

[Data Source Statement: Except for publicly available information, other data are processed by SMM based on public data, market communication, and SMM's internal database models for reference only, and do not constitute decision-making advice.]