US Fed Inflation Data Lower-Than-Expected, US Dollar Index Weakens, LME Aluminum Bottoms Out and Rebounds [SMM Aluminum Morning Meeting Summary]

》Click to View the SMM Aluminum Industry Chain Database

》Subscribe to Access SMM Historical Spot Metal Prices

12.23 SMM Aluminum Morning Meeting Notes

Futures Market: The most-traded SHFE aluminum 2502 contract opened at 19,915 yuan/mt overnight, hitting a high of 19,965 yuan/mt and a low of 19,880 yuan/mt, before closing at 19,945 yuan/mt, down 60 yuan/mt or 0.3% from the previous day. LME aluminum opened at $2,516/mt, reached a high of $2,544.5/mt and a low of $2,511.5/mt, and closed at $2,542/mt, up $27/mt or 1.07%.

Macro Front: (1) US PCE and core PCE data came in below expectations across the board, prompting traders to increase bets on a US Fed interest rate cut in March next year. (Bullish ★) (2) US Fed - Daly: The Fed is very satisfied with its forecast for two interest rate cuts in 2025; Williams: Economic growth is expected to slow to about 2% next year, current policy is appropriate but slightly restrictive; Goolsbee: My forecast is for a slightly lower interest rate path in 2025. Interest rates could drop significantly over the next 12-18 months; Harker: My opposition to rate cuts stems from concerns about inflation. (Bullish ★) (3) Nationwide, the trade-in policy for consumer goods remains popular. As of December 19, nearly 2.7 million vehicles have been scrapped and renewed, over 3.1 million vehicles have been replaced, and more than 52.1 million home appliances have been traded in. The Ministry of Commerce is working with relevant parties to expedite the formulation of next year’s trade-in policy for consumer goods. (Bullish ★)

Fundamentals Side: (1) This week, the operating rate of leading domestic downstream aluminum processing enterprises fell further, down 0.8 percentage points WoW to 62.4%. (Bearish ★★) (2) Primary Aluminum Imports: According to data from the General Administration of Customs, domestic primary aluminum imports in November 2024 were approximately 150,700 mt, down 13.8% MoM and 22.5% YoY. (Bullish ★) (3) Customs data shows that China exported 159,500 mt of aluminum foil in November 2024, up 19% MoM and 46% YoY. (Neutral) (4) According to customs data, domestic aluminum extrusion exports in November 2024 were 123,600 mt, up 40.34% MoM and 43.66% YoY. (Neutral)

Primary Aluminum Market: Last Friday morning, the most-traded SHFE aluminum contract climbed to around 19,950 yuan/mt, breaking above the 5-day moving average. After several days of price declines, downstream restocking at lower prices, combined with a rapid narrowing of the price difference between primary metal and scrap, led to continued destocking of domestic social inventories. Specifically, inventories held by suppliers in east China decreased, and the weekend effect narrowed the discount to the SMM average price to around +20 yuan/mt. SMM A00 aluminum ingot was recorded at 19,830 yuan/mt. In central China, the market saw a sharp drop in futures prices recently, with a significant reduction in long-term contract demand and a focus on spot transactions. Inventories held by suppliers declined, and market liquidity remained tight, narrowing the Henan-Shanghai price spread to a discount of around 60 yuan/mt. SMM Central China A00 aluminum ingot was recorded at 19,770 yuan/mt against the SHFE aluminum 2501 contract.

Secondary Aluminum Raw Materials: Last Friday, aluminum prices rebounded, and aluminum scrap prices generally followed suit. Domestic aluminum scrap prices rose by 0-100 yuan/mt, with the price difference between primary metal and scrap slightly widening. Last Friday, baled UBC aluminum scrap increased by 100 yuan/mt to 15,000-15,520 yuan/mt (excluding tax), while shredded aluminum tense scrap rose by 100 yuan/mt to 16,000-17,000 yuan/mt (liquid aluminum, excluding tax). In the short term, adverse weather conditions have reduced the willingness of some yards to purchase, while port clearance delays and the inverted price spread between domestic and overseas markets have limited the replenishment of imported aluminum scrap, keeping aluminum scrap circulation tight. Under conditions of undersupply, aluminum scrap prices are expected to remain firm in the short term, with the price difference between primary metal and scrap fluctuating rangebound.

Secondary Aluminum Alloy: After five consecutive days of aluminum price declines, prices bottomed out last Friday, leading to a steady to slightly higher trend in secondary aluminum prices. On the import side, ADC12 prices ranged from $2,430-2,460/mt, while port spot cargoes rose by 100 yuan/mt to 19,700-19,900 yuan/mt. Due to stronger domestic prices, the immediate loss per ton for imported ADC12 narrowed to around 500 yuan. Last Friday’s aluminum price rebound caused slight divergence in secondary aluminum market quotations, with some enterprises raising prices by 50-100 yuan/mt due to raw material cost pressures, while others held prices steady, awaiting next week’s price trends. Currently, secondary aluminum smelters face high costs and low finished product inventories, making secondary aluminum alloy prices more likely to rise than fall in the short term.

Summary: On the macro front, US PCE and core PCE indices fell short of expectations, signaling slower inflation and increasing market expectations for US Fed interest rate cuts in March next year. The US dollar index pulled back from a two-year high, providing support for base metals. Fundamentals side, domestic aluminum supply pressure has eased recently. On one hand, domestic aluminum operating capacity has slightly declined, with some aluminum smelters in Sichuan and Guangxi undergoing technological transformations or cutting production due to losses. On the other hand, coal supply issues in Xinjiang have reduced aluminum ingot shipments, accelerating inventory declines. On the demand side, market demand has gradually weakened. Environmental protection inspections in Henan have further reduced weekly operating rates for aluminum plate/sheet and strip, while the aluminum extrusion sector has become increasingly sluggish, reflecting a strong off-season atmosphere. Overall, macro sentiment is influenced by expectations for US Fed interest rate cuts next year, while fundamentals face weak demand during the off-season. Market sentiment remains pessimistic, and aluminum prices are expected to fluctuate downward in the short term.

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