SMM December 18:
From a macro perspective, domestic policies remained proactive. The National Financial System Work Conference on December 12 emphasized the continuation of a moderately accommodative monetary policy; the State-owned Assets Supervision and Administration Commission required central state-owned enterprises to focus on "progress" and avoid "involutionary" competition. Meanwhile, industrial upgrade policies were clear, calling for promoting the clean and efficient use of coal and resolutely phasing out outdated capacity. Overseas, monetary policies generally leaned accommodative. The Director of the White House National Economic Council indicated significant room for interest rate cuts; UK inflation in November fell to an eight-month low, paving the way for central bank rate cuts, while the European Central Bank was expected to keep rates unchanged. US seasonally adjusted non-farm payrolls increased by 64,000 in November, exceeding expectations, but the unemployment rate rose to 4.6%, a four-year high, fueling market expectations for further monetary easing by the US Fed. Note that mid-week, amid expectations of a Bank of Japan rate hike, base metal prices fell across the board. As the yen is a major global funding currency, its rate hike would trigger the unwinding of carry trades, leading to cross-border capital flowing back to Japan and putting risk assets under pressure. Subsequent focus should be on the pace and magnitude of Japan's rate hikes.
On the fundamental side, supply-side domestic and Indonesian aluminum capacity saw steady new releases, with operating production rising slightly, driving a weekly production increase. Demand-side, December is the traditional consumption off-season; this week, operating rates in downstream aluminum wire and cable and aluminum extrusion segments declined to varying degrees. Affected by weakening demand, the SMM weekly proportion of liquid aluminum recorded 76.3%, down 0.24 percentage points WoW. In terms of inventory, shipments from Xinjiang improved this week, overall shipments increased, in-transit inventory rose, while aluminum ingot in-factory inventory and social inventory decreased.
Overall, from a macro perspective, the market needs to monitor the impact of Japan's rate hike pace on aluminum price declines. Domestically, fundamentals currently struggle to provide strong support for sustained aluminum price increases, with weak end-use demand leading to a decline in the proportion of liquid aluminum. Subsequent close attention should be paid to changes in operating rates. Downstream processing enterprises' spot purchasing sentiment remained sluggish, and spot premiums continued to widen. This Thursday, SMM A00 aluminum premiums and discounts were -140 yuan/mt, down about 50 yuan/mt WoW. With improved Xinjiang shipments and rising in-transit inventory, social inventory is expected to accumulate next week, putting pressure on price support levels. The most-traded SHFE aluminum contract is forecast to trade between 21,700-22,100 yuan/mt next week, while LME aluminum is expected to trade between $2,860-2,920/mt.
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