Economic Data Strengthens Expectations for US Fed's Cautious Interest Rate Cut, Aluminum Weakens Overnight [SMM Aluminum Morning Meeting Summary]

》Click to View the SMM Aluminum Industry Chain Database

》Subscribe to Access Historical Spot Prices of SMM Metals

12.20 SMM Aluminum Morning Meeting Summary 

Futures Market: Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,845 yuan/mt, hitting a high of 19,910 yuan/mt and a low of 19,825 yuan/mt, before closing at 19,845 yuan/mt, down 5 yuan/mt or 0.03% from the previous day. On Thursday, LME aluminum opened at $2,524/mt, reached a high of $2,527.5/mt and a low of $2,505.5/mt, and closed at $2,515/mt, down $16/mt or 0.63%.

Macro Front: (1) The US Q3 GDP was revised up from 2.8% to 3.1%, exceeding expectations of no change. Initial jobless claims in the US decreased by 22,000, a larger drop than expected. (Bearish★) (2) The Bank of Japan paused rate hikes for the third consecutive time, with one committee member supporting a hike. Governor Kazuo Ueda stated that rate hikes would continue but depend on the results of spring wage negotiations. Bullish sentiment on the yen among traders hit a one-month low. (Bearish★) (3) He Yaoqian, spokesperson for the Ministry of Commerce, stated at a regular press conference that the ministry will implement policies to promote high-quality service consumption, accelerate the introduction of policies to advance the debut economy, and develop the ice-snow economy, silver economy, digital consumption, green consumption, and health consumption. (Bullish★)

Fundamentals Side: (1) According to SMM statistics, as of December 19, domestic aluminum ingot inventory in major consumption areas stood at 528,000 mt, down 23,000 mt from Monday. Aluminum billet inventory in major consumption areas was 89,100 mt, down 2,400 mt from Monday. (Bullish★) (2) On December 19, SMM reported that aluminum inventory in the Shanghai Bonded Zone was 45,600 mt, while Guangdong Bonded Zone inventory was 9,200 mt, totaling 54,800 mt, up 4,000 mt WoW. (Bearish★)

Primary Aluminum Market: During yesterday's morning session, the most-traded SHFE aluminum contract plunged below the daily moving average to around 19,850 yuan/mt, then rebounded to fluctuate near 19,880 yuan/mt. By the end of the second session, the futures market dropped again to around 19,830 yuan/mt. In east China, spot premiums stabilized as futures prices fell, but premiums remained weak due to large traders controlling cash flow and inventory at year-end. On Thursday, SMM A00 aluminum was at a discount of 120 yuan/mt against the SHFE 2501 contract, down 10 yuan/mt from the previous trading day. SMM A00 aluminum ingot was recorded at 19,680 yuan/mt, down 110 yuan/mt from the previous trading day. In central China, the sharp decline in futures prices recently has significantly reduced demand for long-term contracts, with the market focusing on spot transactions. Circulating supply remained tight, and transportation disruptions in Xinjiang further boosted suppliers' confidence to stand firm on quotes. The Henan-Shanghai price spread narrowed to a discount of around 80 yuan/mt. SMM Central China A00 aluminum was recorded at 19,600 yuan/mt, down 90 yuan/mt from the previous trading day, with actual market transactions at a premium of around 20 yuan/mt against SMM Central China prices.

Secondary Aluminum Raw Materials: Yesterday, aluminum scrap prices were stable to slightly lower. The circulation of aluminum scrap remained tight, and traders were reluctant to sell amid continuous price declines. Domestic aluminum scrap prices fell by 0-100 yuan/mt yesterday. Baled UBC aluminum scrap prices were adjusted down by 0-100 yuan/mt to 14,900-15,425 yuan/mt (excluding tax), while shredded aluminum tense scrap prices remained stable at 15,900-17,100 yuan/mt (liquid aluminum, excluding tax). In the short term, adverse weather conditions have reduced the enthusiasm of some yards to purchase, while import replenishment of aluminum scrap remains limited due to port clearance issues and the inverted price spread between domestic and overseas markets. This has kept aluminum scrap supply tight. Under the undersupply situation, the decline in aluminum scrap prices is limited, and the price difference between primary metal and scrap has narrowed.

Secondary Aluminum Alloy: Despite the continued decline in aluminum prices yesterday, sentiment to stand firm on quotes persisted in the secondary aluminum alloy market, with ADC12 prices mostly unchanged. 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. The relatively small drop in costs, combined with inventory reductions, continues to support secondary aluminum alloy prices. On the import side, overseas ADC12 prices remain in the range of $2,420-2,460/mt, while port spot cargoes are quoted at 19,600-19,800 yuan/mt. Following the US Fed's decision and its cautious stance on future interest rate cuts, the US dollar strengthened, and the yuan fell to a 13-month low against the dollar, leading to an immediate loss of around 600 yuan/mt per ton for imported ADC12.

Summary: On the macro front, Thursday's US economic data reinforced market expectations that the US Fed will adopt a cautious approach to interest rate cuts in the coming year. The US dollar index hit a two-year high, weighing on non-ferrous metals. On the fundamentals side, domestic aluminum operating capacity saw a slight decline, with overall supply remaining stable. On the demand side, downstream operating rates continued to fall due to the off-season, the cancellation of export tax rebates, and disruptions from regional environmental protection-driven production restrictions. Overall, the US Fed's more cautious stance on interest rate cuts and the deepening off-season in consumption have led to increasingly bearish market sentiment. In the 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 prudent decisions and not substitute this for independent judgment. Any decisions made by clients are not related to SMM.]