Tariff disruptions continue to overlap with domestic aluminium ingot inventory buildup, putting short-term pressure on aluminium prices and causing fluctuations [SMM Aluminum Morning Meeting Summary]

[SMM Aluminum Morning Meeting Summary: Tariff Disruptions Continue to Overlay Domestic Aluminum Ingot Inventory Buildup, Aluminum Prices Under Short-Term Pressure and in the Doldrums] On the macro side, the domestic favourable atmosphere remains unchanged, while the impact of overseas tariffs requires vigilance. On the fundamental side, domestic operating capacity of electrolytic aluminium slightly decreased due to replacement projects, with the proportion of liquid aluminium dropping to 74.78% and the volume of casting ingot increasing. On the cost side, there has been an upward trend recently due to the rise in alumina prices. On the demand side, the off-season atmosphere is strong in most downstream sectors. With aluminium prices rising during the off-season, the inhibition on demand has become more pronounced, and the operating rate in the aluminium processing sector remains sluggish. Additionally, the social inventory of domestic electrolytic aluminium ingots has once again shifted to an inventory buildup trend. SMM predicts that aluminium prices will mainly be in the doldrums in the short term, with subsequent focus on changes in inventory and demand.

Futures Market: On the previous trading day's night session, the most-traded SHFE aluminium 2508 contract opened at RMB 20,640 per tonne, with a high of RMB 20,695 per tonne, a low of RMB 20,635 per tonne, and closed at RMB 20,645 per tonne. Trading volume was 31,800 lots, and open interest was 250,000 lots. On the previous trading day, LME aluminium opened at RMB $2,607 per tonne, with a high of $2,614/mt, a low of $2,589.5/mt, and closed at $2,602/mt.

Macro: (1) On July 12 local time, the Mexican Foreign Ministry and the Ministry of Economy stated in a joint statement that, in response to the US announcement of imposing a new 30% tariff on Mexican products exported to the US starting from August 1, the Mexican government considered this "unfair treatment" and had initiated negotiations with the US to protect border enterprises and employment. (Bearish ★) (2) On Saturday, European Commission President Ursula von der Leyen stated in a declaration that the US's imposition of a 30 per cent tariff on EU exports would disrupt important trans-Atlantic supply chains and harm the interests of enterprises and consumers on both sides of the Atlantic. The EU always prioritizes resolving issues through negotiations. (Bullish ★) (3) A strategist at Deutsche Bank recently warned that US President Trump might fire Fed Chairman Powell, which is a significant and underestimated risk that could trigger a sell-off of the US dollar and US Treasury bonds. (Bullish ★)

Fundamentals: (1) In June, the operating rate of China's primary aluminium alloy industry was 50.9 per cent. After excluding the impact of inconsistent operating days from May, it decreased by 1.2 per cent MoM, and the off-season atmosphere became increasingly pronounced. In June, the primary aluminium alloy PMI was recorded at 36.5 per cent, a significant drop of 5 percentage points MoM from May, remaining below the 50 mark with a deepening contraction, indicating a significant increase in downward pressure on the industry. (Bearish ★) (2) On July 11, LME aluminium inventory was recorded at 400,300 mt, an increase of 4,550 mt from the previous day, representing a growth rate of 1.15 per cent. In the most recent week, LME aluminium inventory increased by 36,400 metric tonnes, representing a growth rate of 9.99 per cent. In the most recent month, LME aluminium inventory increased by 42,700 metric tonnes, representing a growth rate of 11.93 per cent. (Bearish ★) (3) According to SMM statistics, on July 14, the inventory of electrolytic aluminium ingots in domestic mainstream consumption areas was 501,000 metric tonnes, an increase of 35,000 metric tonnes from the previous Thursday. (Bearish ★)

Primary Aluminum Market: On Friday morning, the centre of SHFE aluminium prices pulled back slightly, falling to around RMB 20,850 per tonne below the daily average line and fluctuating range bound. In the off-season, demand in east China was weak, with daily shipments significantly exceeding spot orders for purchases, and transactions were conducted at around RMB 10 per tonne against the SMM average price. On Friday, SMM A00 aluminium was reported at RMB 20,790 per tonne, a decrease of RMB 30 per tonne from the previous trading day, with a discount of RMB 70 per tonne against the 07 contract, a decrease of RMB 10 per tonne from the previous trading day. In the early stage, the centre of aluminium prices in the central China market pulled back, with an increase in downstream just-in-time procurement volume and a decrease in incoming cargo, leading to destocking. However, after the centre of aluminium prices returned above RMB 20,800 per tonne, downstream consumption weakened, and traders continuously adjusted premiums for shipments, offering discounts of 20 to RMB 30 per tonne against SMM central China prices, with intense "rat race" competition in premiums. On Friday, SMM central China A00 aluminium closed at RMB 20,660 per tonne against the SHFE aluminium 2507 futures contract, down RMB 50 per tonne from the previous trading day. The price spread between Henan and Shanghai was –RMB 130 per tonne, expanding by 20 yuan/mt from the previous trading day, with a discount of RMB 200 per tonne against the 2507 contract.

Secondary aluminium raw materials: On Friday, the spot price of primary aluminium fell by RMB 30 per tonne from the previous trading day, with SMM A00 spot aluminium closing at RMB 20,790 per tonne. In the aluminium scrap market, prices in some regions lagged behind and continued to rise. During the traditional off-season, downstream scrap utilization enterprises faced weak order releases, with procurement mainly driven by just-in-time needs. On Friday, the centralized quoted price for baled UBC aluminium scrap ranged from 15,400 to RMB 15,900 per tonne (tax not included), and the centralized quoted price for shredded aluminium tense scrap ranged from 16,000 to 17,500 yuan/mt (tax not included). By product, baled UBC aluminium scrap prices rebounded by 50 yuan/mt from the previous day. By region, Shanghai, Jiangsu, Shandong, and other places closely followed aluminium price movements, with price adjustments ranging from 0 to RMB 50 per tonne. Hunan, Guangdong, Jiangxi, Anhui, and other places lagged behind aluminium price movements, with centralized price increases on Friday. According to feedback from secondary aluminium enterprises, secondary aluminium alloy prices are currently low. Although scrap recycling is a challenge, constrained by poor operating rates, the upside room for prices is also limited.

Secondary aluminium alloy: On the futures market, the most-traded cast aluminium alloy 2511 futures contract opened at RMB 19,945 per tonne on Friday, reaching a high of RMB 20,050 per tonne and a low of RMB 19,780 per tonne, and closing at RMB 19,915 per tonne, down RMB 10 per tonne or 0.01 per cent from the previous trading day, with a trading volume of 3,038 and an open interest of 8,851. Bears dominated the intraday position increases. In the spot market, on Friday, SMM A00 aluminium prices fell by RMB 30 per tonne from Thursday to RMB 20,790 per tonne, with secondary aluminium market prices remaining stable. SMM ADC12 prices held steady at RMB 20,100 per tonne.  Recently, both domestic and overseas aluminium scrap supplies have tightened, significantly increasing the difficulty of raw material procurement for secondary aluminium plants. The "scramble for scrap" competition in the market has intensified, while production costs continue to rise, and the scope of production losses for enterprises continues to expand, leading to upward adjustments in enterprise quotes. Constrained by both raw material shortages and weakening demand, multiple secondary aluminium plants have been forced to cut production, with some even entering shutdown status. Overall, strong cost support and weak demand suppression continue to battle, with ADC12 prices expected to maintain a fluctuating rangebound pattern in July.

Summary: On the macro side, the domestic favourable atmosphere remains unchanged, and the impact of overseas tariffs needs vigilance. On the fundamental side, domestic operating capacity for primary aluminium slightly decreased due to replacement projects, with the proportion of liquid aluminium dropping to 74.78 per cent and casting ingot volume increasing. Cost side, there has been an upward trend recently due to rising alumina prices. On the demand side, most downstream sectors are in a strong off-season atmosphere, with aluminium prices rising during the off-season, further suppressing demand. The operating rate in the aluminium processing sector remains sluggish. Additionally, domestic social inventory of primary aluminium ingots has once again turned to an inventory buildup trend. SMM expects aluminium prices to be in the doldrums in the short term, with subsequent focus on inventory and demand changes.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Customers should make prudent decisions and should not use this information to replace their independent judgment. Any decisions made by customers are not related to SMM.]

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