US Fed Inflation Data Lower Than Expected, US Dollar Index Weakens, LME Aluminum Bottoms Out and Rebounds [SMM Aluminum Morning Comment Dec 23]

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

Summary: Macro front, the US PCE and core PCE indices were comprehensively lower than expected, indicating a slowdown in inflation. This increased market bets on an interest rate cut in March next year. The US dollar index pulled back from a two-year high, providing a boost to base metals. Fundamentals side, recently, pressure on the domestic aluminum supply side has eased slightly. On one hand, domestic aluminum operating capacity has seen a slight decline, with reports of capacity technological transformation or loss-induced production cuts at some aluminum smelters in Sichuan and Guangxi. On the other hand, due to coal supply guarantees in Xinjiang, the in-transit volume of domestic aluminum ingots has decreased, accelerating inventory declines. Demand side, market demand has gradually weakened. Environmental protection inspections have resumed in Henan, leading to a downward adjustment in the weekly operating rate of aluminum plate/sheet and strip, while the aluminum extrusion sector has become increasingly sluggish, with 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 has turned pessimistic, and short-term aluminum prices are expected to fluctuate downward.