Geopolitical Situation Continues to Be Unstable SHFE Aluminum Holds Up Well in the Short Term [SMM Aluminum Morning Meeting Summary]

3.3 SMM Morning Meeting Summary

Futures: On the night session of March 2, the most-traded SHFE aluminum 2604 contract opened at 24,500 yuan/mt, reaching a high of 24,600 yuan/mt and a low of 24,125 yuan/mt, closing at 24,195 yuan/mt, down 270 yuan/mt or 1.1% from the previous close. From a technical perspective, the MA lines showed a divergent pattern with MA30 (24,075) > MA5 (24,035) > MA20 (23,989) > MA10 (23,809). The RSI was around 55, rebounding to a moderately strong range, indicating a continuation of the upward trend. In terms of open interest, the night session saw approximately 273,000 lots, a decrease of 5,239 lots from the daytime session. LME aluminum opened at $3,169/mt, reached a high of $3,254/mt, a low of $3,160/mt, and closed at $3,185/mt, up 1.38%. Trading volume was 44,389 lots, an increase of 23,796 lots, while open interest stood at 667,000 lots, a reduction of 10,749 lots.

Macro Front: Trump stated that military action against Iran could last for 4 to 5 weeks, but he is prepared for it to "last much longer." Trump also claimed that the US would completely destroy the Iranian navy and had already sunk 10 of its vessels. (Bullish ★) Iran announced the closure of the Strait of Hormuz, threatening to attack any ships attempting to pass through. The Strait of Hormuz is the only passage from the Persian Gulf to the Indian Ocean, handling the main maritime transport of primary aluminum and related raw materials from the Middle East. Its shipping safety directly determines the operation of the regional aluminum industry, and any disruption would trigger a regional supply crisis, spreading globally. (Bullish ★)

Fundamentals: As of March 2, social inventory of aluminum ingots in various regions increased by 72,000 mt compared to the previous Thursday and by 121,000 mt compared to the previous Monday, with the main buildup occurring in Wuxi, Foshan, and Gongyi. Aluminum billet inventory in major consumption areas increased by 5,500 mt compared to the previous Thursday, mainly in Foshan.

Primary Aluminum Market: In the early trading session, the most-traded SHFE aluminum 2602 fluctuated upward, with the price center higher than the previous trading day. Influenced by the US-Iran conflict, market sentiment was bullish, and buying sentiment increased. Mainstream quotations were concentrated between -10 yuan/mt and 10 yuan/mt, with mainstream transactions at 10 yuan/mt. On Monday, the shipment sentiment index in east China was 2.94, up 0.05 WoW; the purchasing sentiment index was 2.93, up 0.20 WoW. SMM A00 aluminum was quoted at 23,620 yuan/mt, up 210 yuan/mt from the previous trading day, at a discount of 170 yuan/mt against the 2603 contract, unchanged from the previous trading day. The international situation boosted aluminum prices, and on Monday, traders in central China were highly bullish, leading to stronger overall trading sentiment. Some large downstream processing enterprises stopped taking deliveries due to high inventories, but influenced by the bullish sentiment, traders were firm in holding prices. Although buyers preferred to purchase at lower prices, actual transaction prices remained relatively firm. The final actual transaction price in the central China market ranged from a premium of 10 yuan/mt against the central China price to parity with or a discount of 10 yuan/mt against the central China price. On Monday, the shipment sentiment index in the central China market was 2.63, up 0.03 MoM; the purchasing sentiment index was 2.29, up 0.06 MoM. SMM central China closed at 23,500 yuan/mt, up 210 yuan/mt from the previous trading day, at a discount of 290 yuan/mt against the 2603 contract, unchanged from the previous trading day. The price spread between Henan and Shanghai was -120 yuan/mt, unchanged from the previous trading day.

Aluminum scrap: On Monday, the spot primary aluminum price rose 210 yuan/mt MoM, with the overall aluminum scrap market following suit, although regional disparities remained significant. In terms of the price difference between A00 aluminum and aluminum scrap, on March 2, the price difference in Foshan for mixed aluminum extrusion scrap free of paint was 3,318 yuan/mt, and in Jiangsu for bare bright aluminum wire it was 1,211.3 yuan/mt. Areas such as Shandong, Jiangxi, and Hunan saw larger increases on Monday, while other regions were more cautious. After the Chinese New Year holiday, most domestic yards resumed operations and shipments between the eighth and tenth days, with downstream aluminum processing enterprises' raw material inventories dropping to low levels, indicating restocking needs. However, the 2026 Chinese New Year holiday was longer than in previous years, leading to a lag in large-scale restocking activities. This week, there has not been a clear signal of recovery in aluminum scrap shipments. It is expected that the aluminum scrap market will fluctuate at highs this week, with shredded aluminum tense scrap (priced based on aluminum content) mainly operating within the range of 19,000-19,600 yuan/mt (excluding tax). On the supply side, yards are gradually resuming full operations, and the release of sources will increase, but recycling policies still constrain liquidity. On the demand side, downstream enterprises are accelerating their resumption of work, and restocking needs are expected to be slowly released. The tug-of-war between sellers and buyers continues, with the market trading atmosphere gradually recovering but remaining sluggish. Close attention should be paid to the progress of downstream resumptions, the trend of primary aluminum prices, and changes in recycling policies, while being vigilant about price fluctuation risks.

Secondary aluminum alloy: In futures, the most-traded 2604 secondary aluminum alloy contract fluctuated upward on Monday, stabilizing after a slight dip in the morning session, and continued to rise in the afternoon, touching the intraday high at the close. It finally closed at 23,180 yuan, up 450 yuan/mt from the previous close, with a 1.98% increase. Trading volume was 14,947, and open interest was 6,875, mainly due to short positions being reduced. Intraday trading volume slightly increased, while open interest decreased, resulting in a rise with reduced positions. The price broke through the recent range, closing with a medium bullish candlestick, with the KDJ indicator turning upward, indicating a short-term advantage for bulls and strong market sentiment. On Monday, the overall quotations in the secondary aluminum alloy market were raised. Before noon, manufacturers generally raised prices by 100 yuan/mt, and some companies, supported by expectations of rising prices and low finished product inventories, increased the adjustment to 200 yuan/mt. In the afternoon, the futures market surged, further strengthening market sentiment, and some manufacturers followed suit, with cumulative daily increases ranging from 100 to 400 yuan/mt. As enterprises gradually resume work and production, market supply is recovering step by step, and manufacturers' willingness to sell has increased somewhat. However, the pace of downstream resumption of work after the holiday has been relatively mild, with order releases remaining cautious. Purchases are primarily driven by rigid demand, resulting in generally mediocre overall transaction performance. The price rise is more reflective of sentiment and cost drivers. Overall, the short-term price of ADC12 is expected to maintain a pattern of holding up well. Before the pace of production resumptions is fully realized, the release of supply will remain relatively slow. Coupled with cost support, there is limited downside room for prices. Subsequently, as enterprises fully resume production, market focus will gradually shift from the supply side to the realization of end-use consumption. If terminal orders experience a phased increase while primary aluminum continues to fluctuate upward, the price center of ADC12 will still have room to move upward. Conversely, if demand recovery falls short of expectations, prices may continue to fluctuate within a range.

Aluminum Market Summary: The Middle East turmoil triggered by the U.S.-Iran conflict has emerged as the largest geopolitical black swan event in the global primary aluminum market, potentially causing supply disruptions on the scale of millions of metric tons while driving up smelting costs. Coupled with market risk aversion sentiment, aluminum price volatility is expected to amplify. Going forward, it is essential to remain vigilant against risks such as escalating conflicts, strait blockades, raw material supply disruptions, as well as further impacts from macro disturbances on aluminum prices. Enterprises should exercise caution in managing operational and investment risks arising from supply chain fluctuations. Fundamentally, seasonal pressures remain prominent. On the supply side, new electrolysis aluminum projects domestically and overseas are steadily ramping up production, with the conversion ratio of liquid aluminum remaining low. On the demand side, downstream processed material operations are showing a steady recovery pace after the holiday. However, under the current influence of seasonal supply outpacing demand and some goods being backlogged at railway stations, it is anticipated that the peak domestic aluminum ingot inventory after the holiday will surpass 1.35 million mt, reaching a new five-year high. This will be a significant factor suppressing price rises. Overall, aluminum prices exhibited a trend of first declining and then rising around the Chinese New Year, and it is expected that SHFE aluminum will maintain a pattern of holding up well in the short term.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make decisions cautiously and not use this as a replacement for independent judgment. Any decisions made by clients are unrelated to SMM.]