US Dollar Index Hovers at Two-Year High, Aluminum Ingot Inventory Continues to Decline [SMM Aluminum Morning Meeting Summary]

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12.24 SMM Aluminum Morning Briefing 

Futures Market: Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,945 yuan/mt, hit a high of 19,965 yuan/mt, a low of 19,815 yuan/mt, and closed at 19,835 yuan/mt, down 80 yuan/mt or 0.4% from the previous trading day. Yesterday, LME aluminum opened at $2,542/mt, reached a high of $2,562.5/mt, a low of $2,515/mt, and closed at $2,538.5/mt, down $3.5/mt or 0.13%.

Macro Front: (1) The US December Conference Board Consumer Confidence Index fell to 104.7, lower than the expected 113; US November durable goods orders preliminary MoM reading was -1.1%, marking the largest monthly decline since June; US November new home sales annualized total reached 664,000 units, compared to the expected 670,000 units and the previous value of 610,000 units. (Bearish★) (2) The General Office of the CPC Central Committee and the State Council issued opinions on accelerating the construction of a unified and open transportation market: promoting low-altitude airspace management reform and developing general aviation and the low-altitude economy. (Bullish★)

Fundamentals Side: (1) Aluminum Ingot Inventory: As of December 23, domestic aluminum ingot inventory in major consumption areas stood at 503,000 mt, down 25,000 mt from last Thursday. (Bullish★) (2) Aluminum Billet Inventory: Domestic aluminum billet inventory in major consumption areas was 99,000 mt, up 9,900 mt from last Thursday. (Bearish★) (3) Outflows from Warehouses: Last week, aluminum ingot outflows from warehouses totaled 154,500 mt, up 23,600 mt from the previous week; aluminum billet outflows from warehouses totaled 39,300 mt, down 8,300 mt from the previous week. (Bullish★)

Primary Aluminum Market: Yesterday morning, the most-traded SHFE aluminum contract opened with a significant upward shift in its center and then fluctuated. In east China, suppliers saw a decline in on-hand inventory, and the weekend effect narrowed spot discounts to around +10 yuan/mt against the SMM average price. Yesterday, SMM A00 aluminum ingot recorded a discount of 90 yuan/mt against the SHFE aluminum 2501 contract, up 10 yuan/mt from the previous trading day. SMM A00 aluminum ingot was priced at 19,870 yuan/mt, up 400 yuan/mt from the previous trading day. In the central China market, the futures market saw a significant decline recently, and suppliers' on-hand inventory decreased, leading to tight market circulation. The Henan-Shanghai price spread showed a narrowing trend, but news of environmental protection-related production cuts in Henan slowed the narrowing of spot discounts. SMM Central China A00 aluminum ingot recorded 19,810 yuan/mt, up 40 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials: Yesterday, primary aluminum spot prices slightly increased, and aluminum scrap market quotes rose by 50 yuan/mt in many regions. Baled UBC prices increased by about 100 yuan/mt from the previous day, mainly due to tight raw material supply and suppliers standing firm on quotes. Yesterday, baled UBC aluminum scrap was quoted at 14,750-15,625 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 16,000-17,100 yuan/mt (liquid aluminum, excluding tax). In the short term, the overall supply in the spot aluminum scrap market remains limited. Downstream buyers had previously restocked at low prices, leading to weak purchase willingness for high-priced aluminum scrap. Overall market transactions were sluggish, and the price difference between primary metal and scrap fluctuated rangebound.

Secondary Aluminum Alloy: Yesterday, aluminum prices maintained last Friday's upward trend, and secondary aluminum prices were adjusted upward steadily. On the import side, overseas prices for imported ADC12 ranged from $2,430-2,460/mt, while port spot cargoes were quoted up by 100 yuan/mt to 19,800-20,000 yuan/mt. Due to stronger domestic prices, the immediate loss per ton for imported ADC12 narrowed to within 400 yuan. With aluminum prices rising again yesterday, secondary aluminum quotes, which had remained stable last Friday, were raised by 100 yuan/mt. Currently, secondary aluminum plants face high costs, coupled with low finished product inventories. In the short term, secondary aluminum alloy prices are more likely to rise than fall.

Summary: On the macro front, as market inflation data eases, expectations for US Fed interest rate cuts in March next year have resurfaced. However, the market is weighing the prospect of smaller rate cuts next year, with the US dollar index hovering near its two-year high, putting pressure on base metals. On the fundamentals side, domestic aluminum supply pressure has recently eased slightly, with a small decline in operating capacity. Some aluminum smelters in Sichuan and Guangxi have reported capacity technological transformations or production cuts due to losses. On the inventory side, low aluminum prices have stimulated pre-holiday stockpiling by downstream buyers, combined with year-end inventory clearance by suppliers, keeping aluminum ingot inventories on a destocking trend. On the demand side, market rigid demand continues to weaken. Environmental protection inspections have resumed, leading to a downward adjustment in the weekly operating rate of the aluminum plate/sheet and strip sector, while the aluminum extrusion industry has also become increasingly sluggish, with a strong off-season atmosphere. Overall, on the macro front, influenced by expectations for US Fed interest rate cuts next year, and on the fundamentals side, despite slightly eased supply pressure, weak demand during the off-season and growing risks of inventory buildup in the social inventory are expected to keep aluminum prices fluctuating downward in the short term.

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