Expectations for US Fed Interest Rate Cut Strengthen Again; Sustainability of Aluminum Price Increase Remains to Be Observed [SMM Aluminum Morning Meeting Summary]

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1.17 SMM Aluminum Morning Meeting Notes 

Futures Market: Overnight, the most-traded SHFE aluminum 2503 contract opened at 20,420 yuan/mt, with a high of 20,450 yuan/mt and a low of 20,360 yuan/mt, closing at 20,370 yuan/mt, up 70 yuan/mt or 0.35%. Overnight, LME aluminum opened at $2,609/mt, with a high of $2,647/mt and a low of $2,594.5/mt, closing at $2,633.5/mt, up $29.5/mt or 1.19%. 

Macro: (1) US Fed Governor Waller: The possibility of a March interest rate cut cannot be ruled out; if data performs well, there could be three to four interest rate cuts this year (bullish★★); (2) European Central Bank meeting minutes: Members are increasingly confident that inflation will return to target in H1 2025 (bullish★).

Fundamentals: (1) According to SMM statistics, as of January 16, domestic aluminum ingot social inventory stood at 440,000 mt, down 19,000 mt WoW (bullish★★); (2) According to SMM statistics, as of January 16, domestic aluminum billet social inventory reached 151,100 mt, up 14,100 mt WoW (bearish★).

Primary Aluminum Market: On Thursday morning, the SHFE front-month aluminum contract fluctuated rangebound with its center moving upward. Aluminum ingot social inventory saw a significant destocking again, reaching historical lows, providing support for futures prices. Coupled with pre-holiday downstream stockpiling demand, spot discounts were maintained, and transactions were moderate. Specifically, trading activity in east China improved compared to the previous day, mainly due to downstream optimism about future aluminum prices, improved stockpiling sentiment, and low inventory levels, with suppliers primarily transacting at SMM average prices. On Thursday, SMM A00 aluminum recorded a discount of 90 yuan/mt against the SHFE 2502 contract, down 20 yuan/mt from the previous trading day. SMM A00 aluminum ingot was recorded at 20,200 yuan/mt, up 180 yuan/mt from the previous trading day. In the central China market, downstream plate/sheet, strip, and foil operating rates were moderate, mainly driven by pre-holiday rush orders, but the desire to bargain down prices persisted, with spot discounts dominating transactions.

Secondary Aluminum Raw Materials: On Thursday, primary aluminum spot prices rose by 180 yuan/mt compared to the previous trading day, with SMM A00 spot closing at 20,200 yuan/mt. Aluminum scrap market quotations mainly followed the upward trend, with fundamentals maintaining a short-term tight supply situation, and reverse substitution of primary aluminum still present. Currently, suppliers showed reduced willingness to sell, as major downstream small and medium-sized enterprises entered the holiday period, while large enterprises focused on stable long-term contract supply. Overall, pre-holiday downstream stockpiling enthusiasm was low. On Thursday, baled UBC aluminum scrap was quoted at 14,850-15,700 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 16,350-17,850 yuan/mt (liquid aluminum, excluding tax). As the Chinese New Year holiday approaches, traders exhibited a reluctance to sell, with some small factories gradually closing for the holiday, tightening market supply, and overall transactions were average. In the short term, the price difference between primary metal and scrap is expected to fluctuate rangebound.

Secondary Aluminum Alloy: On Thursday, aluminum prices resumed their upward trend, with SMM A00 aluminum prices rising by 180 yuan/mt from the previous trading day to 20,200 yuan/mt, and secondary aluminum market quotations showed steady increases. Domestically, large secondary aluminum enterprises raised quotations by 0-100 yuan/mt to 20,800-21,000 yuan/mt, while small and medium-sized enterprises raised quotations by 0-100 yuan/mt to 20,500-20,700 yuan/mt. For imports, overseas ADC12 prices ranged from $2,440-2,470/mt, and with domestic price increases, the immediate loss on imported ADC12 narrowed to within 400 yuan/mt. On Thursday, aluminum prices resumed their upward trend, and secondary aluminum market quotations showed slight divergence. Some manufacturers actively followed the increase by 100 yuan/mt due to high costs and low inventory, while others indicated that pre-holiday transactions were slowing, with low enthusiasm for price adjustments. Recently, as upstream and downstream enterprises gradually enter the holiday period, secondary aluminum alloy prices are expected to fluctuate within a narrow range before the holiday. 

Summary: Expectations for US Fed interest rate cuts strengthened again, driving overnight aluminum prices higher. Fundamentals side, pre-holiday concentrated stockpiling by aluminum processing enterprises, coupled with logistics disruptions in some shipping areas, led to aluminum ingot inventory depletion exceeding expectations, providing short-term support for aluminum prices. However, aluminum supply remains stable, and spot alumina prices continue to decline due to ample supply, reducing cost support for the aluminum industry. Demand side, as the Chinese New Year approaches, market demand weakens, and some small and medium-sized aluminum processing plants are nearing holiday closures, introducing uncertainty to the sustainability of inventory destocking. In the short term, attention should remain on the impact of falling spot alumina prices on aluminum costs, as well as downstream holiday schedules and the continuity of pre-holiday stockpiling pace.

 【The information provided is for reference only. This article does not constitute direct investment research advice. Clients should make cautious decisions and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.】