US Fed's Hawkish Stance Causes US Dollar to Plunge, Pressuring Aluminum Futures [SMM Aluminum Morning Meeting Notes]

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12.19 SMM Aluminum Morning Meeting Summary 

Futures Market: Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,930 yuan/mt, reached a high of 19,950 yuan/mt, a low of 19,880 yuan/mt, and closed at 19,945 yuan/mt, up 20 yuan/mt or 0.10% from the previous day. On Wednesday, LME aluminum opened at $2,544/mt, hit a high of $2,549/mt, a low of $2,526/mt, and closed at $2,531/mt, down $6/mt or 0.24%.

Macro Front: (1) On December 18 local time, the US Federal Reserve announced a 25 basis point cut to the federal funds rate target range, bringing it to 4.25%-4.50%, in line with market expectations. The dot plot indicates that the forecast for rate cuts next year has been adjusted from four to two. Powell stated that future rate adjustments could be more cautious, depending on further progress in reducing inflation. Influenced by the Fed's hawkish stance, the US dollar index surged by 120 points, closing up 1.228% at 108.26, marking a new high since November 2022 (Bearish ★). (2) The People's Bank of China and the State Administration of Foreign Exchange decided to optimize the pilot policy for integrated domestic and foreign currency capital pools for multinational companies in 10 provinces and cities, including Shanghai, Beijing, Jiangsu, Zhejiang, Guangdong, Hainan, Shaanxi, Ningbo, Qingdao, and Shenzhen. Key measures include allowing cross-currency borrowing among domestic member enterprises of multinational companies for cross-border payments under current accounts, thereby reducing corporate financing costs (Bullish ★).

Fundamentals Side: (1) According to data from the General Administration of Customs, in November 2024, China's alumina exports reached 190,000 mt, up 56.7% YoY. From January to November 2024, cumulative exports totaled 1.6 million mt, up 42.5% YoY. In November, China imported 12.35 million mt of bauxite and its concentrates, up 0.5% MoM and 4% YoY. From January to November, cumulative imports reached 143.9 million mt, up 11.2% YoY (Neutral). (2) According to SMM, starting December 19, a major alumina refinery in Shandong adjusted its purchase price for 32% ion membrane liquid caustic soda, reducing it by 20 yuan/mt from 840 yuan/mt to 820 yuan/mt ex-factory under the two-invoice system (equivalent to 2,563 yuan/mt on a 100% basis) (Bearish ★).

Primary Aluminum Market: Yesterday morning, SHFE aluminum stabilized and rebounded, consolidating around 19,950 yuan/mt. After 10 a.m., the futures market turned downward, breaking below the 19,900 yuan/mt level. In east China, major traders continued destocking under year-end cash flow constraints, and despite the futures market decline, downstream restocking sentiment improved, but this failed to prevent the decline in premiums and discounts. On Wednesday, SMM A00 aluminum ingot recorded a discount of 110 yuan/mt against the SHFE aluminum 2501 contract, down 20 yuan/mt from the previous trading day. SMM A00 aluminum ingot was quoted at 19,790 yuan/mt, down 110 yuan/mt from the previous trading day. In central China, downstream buyers restocked on dips, creating a favorable trading atmosphere, with traders standing firm on quotes. The Henan-Shanghai price spread narrowed to a discount of around 100 yuan/mt. SMM Central China A00 aluminum ingot was quoted at 19,690 yuan/mt, down 210 yuan/mt from the previous trading day, with actual transactions showing a premium of 10-20 yuan/mt against SMM Central China prices. Inventory-wise, according to SMM daily inventory statistics, mainstream consumption areas saw a destocking of 12,400 mt. After aluminum prices fell below the 20,000 yuan/mt threshold, downstream restocking increased, and premiums in regions outside east China rebounded. Currently, with the final invoicing month of 2024 not yet concluded, the market still faces destocking pressure for cash flow recovery, and premiums in east China may remain weak.

Secondary Aluminum Raw Materials: Currently, aluminum scrap supply remains tight, and suppliers are reluctant to sell at low prices amid continuous price declines. Yesterday, domestic aluminum scrap prices mostly fell by 0-100 yuan/mt. Baled UBC aluminum scrap prices were reduced by 100-150 yuan/mt to 14,950-15,425 yuan/mt (excluding tax), while shredded aluminum tense scrap prices dropped by 0-100 yuan/mt to 15,900-17,100 yuan/mt (liquid aluminum, excluding tax). In the short term, as winter sets in across north China, some yards are seeing reduced purchase volumes. Additionally, factors such as port clearance delays and inverted domestic-overseas price spreads are limiting imported aluminum scrap replenishment, further tightening aluminum scrap circulation. Under undersupply conditions, short-term aluminum scrap prices are expected to see limited declines, and the price difference between primary metal and scrap has narrowed.

Secondary Aluminum Alloy: Yesterday, ADC12 prices remained stable. The tight circulation of aluminum scrap has not eased, and secondary aluminum producers are actively purchasing to meet delivery and stocking demand, though procurement remains challenging. Both social and in-plant inventories of secondary aluminum alloy have declined. With relatively small cost-side declines and falling inventories, secondary aluminum alloy prices are expected to remain firm. In the short term, secondary aluminum alloy prices are likely to fluctuate rangebound with aluminum prices. On the import side, current overseas prices for imported ADC12 remain in the range of $2,420-2,460/mt, while port spot cargoes are quoted at 19,600-19,800 yuan/mt. Instantaneous losses per ton for imported ADC12 remain around 500 yuan.

Summary: On the macro front, the US Fed announced a 25 basis point rate cut to the 4.25%-4.50% range, marking the third consecutive rate cut and aligning with expectations. The latest dot plot shows policymakers expect two rate cuts in 2025, down from the four cuts projected in September. Following the Fed's decision and its cautious tone on future rate cuts, the US dollar index surged over 1% to a two-year high, putting pressure on the non-ferrous metals market. On the fundamentals side, current supply-side changes are relatively small. On the demand side, downstream operating rates continue to decline due to off-season effects, the cancellation of export tax rebates, and disruptions from regional environmental protection-driven production restrictions. Overall, the macro front is weighed down by the Fed's hawkish remarks, while the fundamentals face risks of off-season consumption and aluminum ingot inventory buildup. Market sentiment is turning pessimistic, and short-term aluminum prices are expected to fluctuate downward.

[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.]