Tightened compliance regulations push up costs, ADC12 prices drift higher

Aluminium scrap: This week, China's aluminium scrap market prices followed the decline before partially rebounding, with the centre pulling back alongside primary aluminium. As of September 17, SMM A00 aluminium prices closed at RMB 24,180 per tonne, down RMB 380 per tonne from RMB 24,560 per tonne last Thursday, while domestic aluminium scrap prices followed the decline by a relatively limited margin.

In terms of price spreads, on September 17, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan stood at approximately RMB 2,468 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap stood at approximately RMB 1,247 per tonne, with the aluminium tense scrap price spread narrowing further W-o-W.

On the supply side, the tight raw material supply pattern remained unchanged, and the scarcity of compliant, invoiced aluminium scrap continued to rise. Notably, tax audits in central China continued to escalate, with the sharp drop in regional aluminium scrap supply set to cause significant disruption to aluminium scrap circulation. On the import side, this week, imported shredded aluminium prices at Ningbo port were raised from RMB 21,370 per tonne to RMB 21,470 per tonne (tax inclusive), while Tianjin port prices rose from RMB 21,420 per tonne to RMB 21,520 per tonne (tax inclusive).

On the demand side, the cast aluminium 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 aluminium alloy was moderate, and in-factory aluminium scrap inventory was relatively ample.

The aluminium 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 aluminium scrap yards slow down shipments, circulating supply will tighten again, providing strong support for aluminium scrap prices. Going forward, close attention will remain on the chain reactions of tax audits across the aluminium scrap industry chain and changes in orders at scrap utilisation enterprises.

Secondary aluminium alloy: This week, ADC12 market prices initially fell before rebounding, with a cumulative weekly increase of RMB 150 per tonne. Today, the SMM ADC12 average price closed at RMB 24,350 per tonne. The cost side was the core driver of this week's market.

Prices of raw materials such as aluminium 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 aluminium 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 realisation 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 aluminium industry leaders edged up 0.6 percentage points W-o-W to 53.3 per cent 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 USD 3,100–3,200 per tonne, but the increase was weaker than domestic prices.

Combined with a stronger yuan, import losses narrowed rapidly to within RMB 200 per tonne, 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 aluminium scrap supply, the procurement cost centre 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 realisation of peak season demand.

Note: This article has been issued by SMM and has been published by AL Circle with its original information without any modifications or edits to the core subject/data.