During the Chinese New Year, the increase in aluminum ingot inventory exceeded the level of the same period. Post-holiday consumption has not yet recovered, and aluminum prices are under short-term pressure. [SMM Aluminum Morning Meeting Summary]

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2.6 SMM Aluminum Morning Meeting Summary

Futures Market: Overnight, the most-traded SHFE aluminum 2503 contract opened at 20,150 yuan/mt, reached a high of 20,290 yuan/mt, a low of 20,085 yuan/mt, and closed at 20,240 yuan/mt, up 25 yuan/mt or 0.12% from the previous close. On Wednesday, LME aluminum opened at $2,630/mt, hit a high of $2,638/mt, a low of $2,592/mt, and closed at $2,624/mt, down $5/mt or 0.19%.

Macro: (1) The US January ISM Non-Manufacturing PMI recorded 52.8, significantly below the expected 54.3 and the previous value of 54.1. (Bearish★) (2) The US January ADP employment figure recorded 183,000, the highest since October last year, compared to the market expectation of 150,000. (Bullish★) (3) On February 5, Premier Qiang Li presided over the seventh plenary meeting of the State Council, which proposed anchoring development goals, increasing counter-cyclical adjustments as needed, focusing on prominent issues, integrating resources, and taking bold and tangible policy measures to promote high-quality development. (Bullish★) (4) Former President Trump stated he is not in a hurry to talk with Chinese leaders. The Ministry of Foreign Affairs responded that what is needed now is dialogue based on equality and mutual respect. (Bearish★) 

Fundamentals: (1) Aluminum ingot inventory: According to SMM statistics, as of February 5, 2025, domestic social inventory of aluminum ingots stood at 654,000 mt, with circulating aluminum inventory at 528,000 mt, an inventory buildup of 162,000 mt or 32.9% compared to pre-holiday levels (January 27). (Bearish★) (2) Aluminum billet inventory: As of February 5, 2025, domestic social inventory of aluminum billets was 275,000 mt, an inventory buildup of 51,000 mt or 22.8% compared to pre-holiday levels (January 27). (Bearish★) (3) The General Office of the Qinghai Provincial Government issued several measures for achieving a "good start" in Q1 2025, including promoting high-end, intelligent, and green transformation. Actions include upgrading traditional industries, advancing digital transformation in manufacturing, building the Golmud Salt Lake Green Industrial Park, extending the green electricity–aluminum–deep aluminum processing industry chain, and supporting deeper cooperation among upstream and downstream enterprises in the PV and lithium battery industries. (Bullish★)

Primary Aluminum Market: Yesterday morning, the front-month SHFE aluminum contract fluctuated downward to around 20,240 yuan/mt, followed by a late-session drop to below 20,200 yuan/mt. In east China, on the first trading day after the holiday, buyers and sellers had not fully returned, and under the off-season inventory buildup, the market turned into a buyer's market with sluggish trading. SMM A00 aluminum against the SHFE 2502 contract posted a discount of 40 yuan/mt, down 20 yuan/mt from the previous trading day. SMM A00 aluminum ingot was recorded at 20,140 yuan/mt, up 20 yuan/mt from the previous trading day. In central China, suppliers resumed long-term contract deliveries after the holiday, while downstream enterprises prioritized consuming cold-rolled finished product inventories before restarting casting and rolling production lines. Spot market trading was sluggish during the day. SMM Central China A00 aluminum against the SHFE 2502 contract was recorded at 20,010 yuan/mt, down 10 yuan/mt from the previous trading day, with actual market transactions around SMM Central China -20 yuan/mt. In terms of inventory, post-holiday SMM mainstream aluminum consumption area weekly inventory recorded 654,000 mt, an inventory buildup of 162,000 mt, exceeding seasonal highs in previous years. With downstream consumption yet to recover, the market remains in an oversupply situation, and spot discounts are expected to continue expanding.

Secondary Aluminum Raw Materials: Yesterday, aluminum scrap market prices were basically flat. 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). After the holiday, most aluminum scrap traders have not resumed operations, and downstream scrap-using enterprises mainly focused on consuming inventories, with normal procurement yet to recover. Overall market transactions were limited. Under weak supply and demand, the short-term price difference between primary metal and scrap is expected to fluctuate rangebound.

Secondary Aluminum Alloy: On the first trading day after the holiday, secondary aluminum prices remained unchanged, with SMM ADC12 prices flat at 21,000-21,200 yuan/mt compared to pre-holiday levels. Imported ADC12 overseas prices slightly declined to $2,420-2,450/mt, with the immediate break-even point for imported ADC12 recovering to near the break-even line from previous losses. Although secondary aluminum plants gradually resumed production from the sixth day of the holiday, both upstream and downstream sectors largely remained in holiday mode, resulting in a sluggish market atmosphere and limited transactions. Most manufacturers maintained pre-holiday quotations. While demand has not fully recovered, raw material costs still provide some support for ADC12 prices, which are expected to fluctuate within a narrow range in the short term.

Summary: Macro side, the US January ISM Non-Manufacturing PMI recorded 52.8, significantly below the expected 54.3. The US January ADP employment figure recorded 183,000, the highest since October last year. US data released on Wednesday showed mixed results, and the US dollar index continued to decline. Fundamentals side, domestic operating capacity of aluminum is expected to remain stable in February, while the average spot price of alumina is expected to drop significantly, potentially driving aluminum costs further downward and weakening cost-side support. On the demand side, according to SMM statistics, the increase in domestic aluminum ingot inventory during this year's Chinese New Year exceeded both last year's levels and the recent average, exerting some pressure on short-term aluminum prices. Additionally, the market remains in the off-season, with downstream consumption yet to recover, leading to an oversupply situation and continued expansion of spot discounts. In the short term, aluminum prices are expected to fluctuate downward, with recent focus on tariff developments, post-holiday inventory performance, and downstream resumption pace.

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