Domestic and International Macro Sentiment Warms Up, Driving Aluminum Prices to Fluctuate Upward [SMM Aluminum Morning Meeting Summary]

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Jan. 20 SMM Aluminum Morning Meeting Notes

Futures Market: On Friday night, the most-traded SHFE aluminum 2503 contract opened at 20,470 yuan/mt, hitting a high of 20,545 yuan/mt and a low of 20,430 yuan/mt, and closed at 20,545 yuan/mt, up 75 yuan/mt or 0.36%. On Friday, it opened at $2,631.5/mt, reached a high of $2,692/mt and a low of $2,631.5/mt, and closed at $2,680.5/mt, up $47/mt or 1.79%.

Macro: (1) On January 17, the National Bureau of Statistics (NBS) released data showing that China's preliminary GDP for 2024 reached 134,908.4 billion yuan, up 5% YoY at constant prices (bullish★★); (2) NBS: The economic recovery trend in December last year became more evident, with industrial growth reaching its highest level since H2 (bullish★).

Fundamentals: (1) As bauxite is not expected to see a significant surplus in 2025, its average price is expected to rise compared to 2024, providing cost support for alumina. However, with over 10 million mt of new alumina capacity expected to be commissioned in 2025, alumina production is anticipated to increase further, leading to a slight surplus in alumina supply and demand. Without other disruptions, the alumina industry is unlikely to replicate the significant profitability seen in 2024, and spot prices are expected to pull back significantly from the beginning of the year (bearish★★); (2) According to data released by the NBS on January 17, China's primary aluminum (electrolytic aluminum) production in December 2024 was 3.77 million mt, up 4.2% YoY. The total primary aluminum production for 2024 was 44.01 million mt, up 4.6% YoY (bearish★).

Primary Aluminum Market: On Friday morning, the SHFE front-month aluminum contract fluctuated rangebound with its center moving upward. Aluminum ingot social inventory continued to decline, and downstream buying sentiment increased ahead of the weekend, narrowing spot discounts and improving transactions. Specifically, trading in east China was active, mainly due to ongoing inventory destocking and insufficient arrivals in north-west China, leading to tight market supply. Suppliers purchased for long-term contracts, and downstream stockpiling demand also contributed to narrowing spot discounts. On Friday, SMM A00 aluminum was at a discount of 80 yuan/mt against the SHFE aluminum 2502 contract, up 10 yuan/mt from the previous trading day. SMM A00 aluminum ingot was recorded at 20,340 yuan/mt, up 140 yuan/mt from the previous trading day. In the central China market, downstream plate/sheet, strip, and foil operating rates were moderate, mainly due to pre-holiday delivery of extrusion orders. Additionally, environmental protection-related production cuts in Gongyi from January 10-20 led downstream to stockpile raw material inventory in advance.

Secondary Aluminum Raw Materials: On Friday, primary aluminum spot prices rose by 140 yuan/mt from the previous trading day, with SMM A00 spot closing at 20,340 yuan/mt. Aluminum scrap market quotations mainly followed the upward trend, with the short-term fundamentals maintaining a tight supply situation, and primary aluminum substitution still present. Suppliers gradually entered the Chinese New Year holiday, reducing their willingness to sell. On Friday, baled UBC aluminum scrap was quoted at 14,850-15,700 yuan/mt (tax excluded), and shredded aluminum tense scrap was quoted at 16,350-17,850 yuan/mt (liquid aluminum, tax excluded). As the holiday approached, traders showed reluctance to sell, and some small factories began to close for the holiday, tightening market supply and leading to average transactions. In the short term, the price difference between primary metal and scrap is expected to fluctuate rangebound. Secondary Aluminum Alloy: On Friday, aluminum prices continued to rise, with SMM A00 aluminum prices up 140 yuan/mt from the previous trading day to 20,340 yuan/mt, marking a total increase of 320 yuan/mt over two days. The secondary aluminum market generally followed the upward trend. Domestically, large secondary aluminum enterprises raised quotations by 0-100 yuan/mt to 20,800-21,100 yuan/mt, while small and medium-sized factories increased 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 prices rising, the immediate loss on imported ADC12 narrowed to within 400 yuan/mt. On Friday, aluminum prices maintained an upward trend, and secondary aluminum plants showed greater enthusiasm for price adjustments compared to the previous day, with enterprises generally raising prices by 100 yuan/mt. As the Chinese New Year approaches, with downstream closures and logistics halts, transactions are expected to gradually decrease next week, and ADC12 prices are likely to fluctuate rangebound with A00 aluminum.

Summary: Macro-wise, US December retail sales growth was weaker than expected, and dovish remarks from US Fed officials lowered US Treasury yields and the US dollar, improving macro sentiment. Domestically, GDP achieved the annual growth target of 5%, and the annual industrial output of enterprises above designated size increased by 5.8% YoY, with domestic data outperforming expectations. On the fundamentals side, aluminum supply remains stable, while alumina spot prices continue to decline due to ample supply, reducing cost support for the aluminum industry. On the demand side, as the Chinese New Year approaches, market demand weakens, and some small and medium-sized aluminum processing plants are nearing holiday closures, creating uncertainties for the sustainability of inventory destocking. In the short term, attention should remain on the impact of falling upstream alumina spot prices on aluminum costs, as well as downstream holiday schedules and the continuation of pre-holiday stockpiling. 【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.】