Since late April, aluminum billet processing fees in China's three major consumption regions staged a strong rebound, with South China taking the lead. Processing fees of φ120 aluminum billets (Guangdong) hit a Q2 low of -40 yuan/mt on April 16, then surged rapidly, approaching the 500 yuan/mt mark by month-end in May, and reaching a new yearly high of 490 yuan/mt on May 28. SMM believed there were three main reasons...

SMM May 29 News: [SMM] On May 29, SMM A00 aluminum (Foshan) was quoted at 24,060, up 50, at a discount of 225 to the current-month contract, narrowing by 5 (unit: yuan/mt). Futures edged up during the daytime session today, while spot cargo in South China was generally stable with slight fall. As absolute prices remained at a relatively low level and inventory declined significantly, most holders continued to hold prices firm for shipments in the morning. However, the spot-futures price spread had previously strengthened to a relatively high level, and combined with peak cash realization demand ahead of the month-end weekend, circulating supplies were notably loosened. Efforts to hold prices firm ultimately failed, and mainstream quotations reverted to lower levels with increased offerings. Mainstream quotations were at a discount of 20-0 yuan/mt, with sellers showing greater eagerness to make shipments. Although downstream buyers rushed to buy amid continuous price rise to replenish stocks, the incremental volume was limited, while traders pushed for lower prices and only accepted purchases at a discount for rigid demand. Demand lacked follow-through momentum, and overall transactions were lackluster. Spot transaction prices were concentrated at a premium of 205-245 yuan/mt to the SHFE aluminum 2606 contract.

[Rising Interest Rate Cut Expectations Boost Market Sentiment; Aluminum Prices Continue LME Outperforms SHFE Sideways Pattern] On the domestic front, driven by improved export profits, aluminum semis exports recovered somewhat and are expected to remain at a relatively high level in the short term. However, the pace of inventory destocking in China remained slow, spot aluminum transactions were lackluster, and downstream purchasing remained cautious, limiting SHFE aluminum's upside room. Overall, aluminum prices are expected to continue the LME outperforms SHFE sideways pattern in the short term.

This week, the operating rate of China's leading downstream aluminum processing enterprises was 64.1%, down 0.3 percentage points WoW.

SMM May 28 update: The SHFE aluminum 2606 contract fluctuated downward in early trading, with the overall price center moving significantly lower than the previous trading day. Affected by declining aluminum prices, some sellers' selling sentiment weakened, while downstream enterprises' buying sentiment rose MoM, pushing up buyers' price acceptance levels. Mainstream spot quotes in the market ranged from SMMA00 average price to +10 yuan/mt. East China market shipment sentiment index was 2.97 today, down 0.06 MoM; procurement sentiment index was 3.36, up 0.1 MoM. Futures declined today. In the central China market, downstream processing enterprises' procurement sentiment rebounded slightly, but purchases remained primarily need-based and in small volumes. Suppliers tended to ship in large volumes when the spot-futures price spread was relatively small, and market shipment sentiment improved notably. Overall transaction activity became more active compared to the previous two days. The actual transaction price range in the central China market ultimately centered around a premium of 10 yuan to a discount of 10 yuan relative to the central China price. The central China market shipment sentiment index was 2.86 today, up 0.03 MoM; procurement sentiment index was 2.26, up 0.01 MoM. Inventory side, aluminum ingot inventory in major consumption areas rose 1,500 mt MoM today, with the inventory buildup mainly driven by the Gongyi area.

[Hawkish US Fed Expectations Heat Up, Aluminum Prices Under Pressure and in the Doldrums] On the fundamentals, the tight spot cargo situation in the ex-China aluminum market continued. LME aluminum inventory remained at low levels, cancelled warrants continued to grow, reflecting tight available supplies. Meanwhile, Japan's Q3 spot aluminum premiums were further raised, also indicating resilient Asian spot demand. Multiple factors jointly supported LME aluminum's performance. On the China side, driven by improved export margins, aluminum semis exports recovered and are expected to remain at a relatively high level in the near term. However, the pace of China's inventory drawdown was slow, spot transactions were lackluster, and downstream purchasing remained cautious, limiting SHFE aluminum's upside room. Overall, aluminum prices are expected to continue moving sideways with LME outperforming SHFE in the near term.

SMM May 27 update: During the morning session, the SHFE aluminum 2606 contract traded in a range, with the overall price center moving higher compared to the previous trading day. Bullish sentiment was strong in the market, and buying sentiment from downstream enterprises and traders rebounded MoM. This pushed sellers to raise their offers, and transaction prices moved higher. The overall trading atmosphere in the market improved. Mainstream spot cargo quotes in the market ranged from SMMA00 average price to +10 yuan/mt. Today, the east China market shipments sentiment index was 3.03, down 0.01 MoM; the purchasing sentiment index was 3.26, up 0.09 MoM. Trading in the central China market remained sluggish today. The price spread between central China and Shanghai was relatively small and higher than long-term contract prices. Downstream processing enterprises had low buying sentiment and preferred long-term contract settlements. Combined with rising aluminum futures prices, the overall trading atmosphere in the market was subdued. Additionally, affected by insufficient invoice quotas, traders preferred trading with cargoes with invoices dated this month, while transactions with next-month invoices were weak. Ultimately, the actual transaction price range in the central China market was between parity with the central China price and a discount of 20 yuan/mt to the central China price. Today, the central China market shipments sentiment index was 2.83, up 0.01 MoM; the purchasing sentiment index was 2.25, flat MoM. Inventory side, aluminum ingot inventory in major consumption areas rose 9,500 mt MoM today, with all three regions showing a destocking trend.

SMM May 26 update: During the morning session, the SHFE aluminum 2606 contract fluctuated downward, with the overall price center moving lower compared to the previous trading day. Affected by the decline in aluminum prices, some sellers held prices firm. Combined with the recent low aluminum prices, buyer buying sentiment picked up, and the overall market trading atmosphere improved. The mainstream spot quotation in the market was around SMMA00 average price to +10 yuan/mt. Today, the east China market shipment sentiment index was 3.04, down 0.02 MoM; the procurement sentiment index was 3.17, up 0.01 MoM. Recently, the Henan-Shanghai price spread was relatively small and higher than long-term contract prices. Downstream processing enterprises in the central China market had low buying sentiment and preferred long-term contract settlement, with overall market transactions being rather sluggish. Additionally, aluminum prices surged at the market opening, and suppliers offered lower quotes with weak willingness to hold prices firm. Ultimately, the actual transaction price range in the central China market hovered between a premium of 20 yuan and a discount of 30 yuan to the central China price. Today, the central China market shipment sentiment index was 2.82, down 0.02 MoM; the procurement sentiment index was 2.25, down 0.01 MoM. Inventory side, aluminum ingot inventory in major consumption areas rose by 500 mt MoM today, with the inventory buildup mainly originating from Guangdong and Gongyi.

SMM May 25 News: Futures continued to edge down during the daytime session, and spot aluminum in South China remained in the doldrums. Both absolute prices and the spot-futures price spread weakened. In the early morning, holders attempted to hold prices firm and slow shipments. However, concentrated arrivals over the weekend led to a sharp inventory buildup, adding pressure, while widespread low-priced shipments of cargoes with invoices dated next month further weighed on the market. Sellers ultimately reverted to slight price cuts to stimulate transactions, with mainstream quotations at a discount of 10-0 yuan/mt, and liquidity was ample. Buyers gradually shifted from a wait-and-see stance of pushing for lower prices to making just-in-time procurement on dips to replenish current-month input tax credits, with almost no release of discretionary demand. Overall transactions were lackluster, and the market lacked notable highlights. Spot transaction prices were concentrated at a premium of -325 yuan/mt to -285 yuan/mt against the SHFE aluminum 2606 contract.

SMM May 25 reported: During the morning session, the SHFE aluminum 2606 contract traded in a range, with the overall price center moving lower compared to the previous trading day. Some buyers had strong bullish sentiment, and as the impact of tax invoice reductions gradually eased, overall buying sentiment in the market improved somewhat, while some sellers held prices firm. The mainstream spot quotation in the market was around SMMA00 average to +10 yuan/mt. Today, the east China market shipments sentiment index was 3.06, flat MoM; the purchasing sentiment index was 3.16, up 0.06 MoM. Recently, the price spread between central China and Shanghai was relatively small and higher than long-term contract prices. Downstream processing enterprises in the central China market had low buying sentiment and preferred long-term contract settlement, with overall market transactions being sluggish. Additionally, aluminum futures prices surged at the opening, and suppliers offered lower prices with weak willingness to hold prices firm. Ultimately, the actual transaction price range in the central China market was between a premium of 20 yuan and a discount of 30 yuan to the central China price. Today, the central China market shipments sentiment index was 2.84, flat MoM; the purchasing sentiment index was 2.26, down 0.02 MoM. Inventory side, today the aluminum ingot inventory in major consumption areas rose 9,500 mt MoM, with the inventory buildup mainly originating from Guangdong and Wuxi.