LME Aluminum Closed for Two Days Due to Holiday, SHFE Aluminum Maintained a Weak Trend Overnight [SMM Aluminum Morning Meeting Summary]

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12.26 SMM Aluminum Morning Briefing 

Futures Market: Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,875 yuan/mt, hit a high of 19,935 yuan/mt, a low of 19,780 yuan/mt, and closed at 19,820 yuan/mt, down 75 yuan/mt or 0.37% from the previous trading day.

Macro Front: (1) Hamas stated that Israel's new conditions delayed the agreement timeline; Israeli Prime Minister Benjamin Netanyahu claimed that Hamas violated the agreements reached in hostage negotiations (bullish★). (2) On the 25th, the PBOC conducted a scaled-down rollover of 300 billion yuan in MLF, with the bid rate maintained at 2%, significantly reducing the scale by 1.15 trillion yuan compared to the 1.45 trillion yuan due. Wang Qing, Chief Macro Analyst at Orient Securities, believes that an RRR cut is still possible before the end of the year (bullish★).

Fundamentals Side: (1) On October 4, 2024, Rusal announced plans to double the capacity of its Boguchansky aluminum smelter in Siberia to 600,000 mt by 2030. However, on November 26, the company issued a statement saying it would cut annual aluminum production by 6% due to soaring global alumina prices and slowing domestic demand. SMM learned that the company is not reducing existing capacity but canceling its previous expansion plans, with annual capacity expected to remain around 4.5 million mt in the coming years, consistent with recent production levels (bullish★). (2) According to Bloomberg, S&P Global Mobility estimates that global auto sales are expected to increase slightly next year due to higher vehicle supply. However, global auto production may decline as automakers aim to control inventory levels (bearish★).

Primary Aluminum Market: On Wednesday morning, the most-traded SHFE aluminum contract fluctuated rangebound after opening, remaining below the 20,000 yuan/mt threshold. Low aluminum prices combined with low inventory levels prompted downstream restocking at lower prices, with good buying sentiment. Specifically, in east China, suppliers' inventories declined, and improved buying sentiment from downstream narrowed spot discounts to around +20 yuan/mt against the SMM average price. SMM A00 aluminum recorded a discount of 40 yuan/mt against the SHFE aluminum 2501 contract, up 20 yuan/mt from the previous trading day. SMM A00 aluminum ingot was recorded at 19,830 yuan/mt, up 40 yuan/mt from the previous trading day. In the central China market, spot aluminum prices remained low recently, with suppliers' inventories declining and tight market availability. The Henan-Shanghai price spread narrowed, but news of environmental protection-related production cuts in Henan slowed the narrowing momentum, with the Henan-Shanghai price spread at a discount of around 70 yuan/mt. SMM Central China A00 aluminum recorded 19,760 yuan/mt against the SHFE aluminum 2501 contract, up 40 yuan/mt from the previous trading day, with actual market transactions at a discount of 10 yuan/mt to parity against SMM Central China prices.

Secondary Aluminum Raw Materials: On Wednesday, primary aluminum spot prices rose slightly compared to the previous day, with SMM A00 spot aluminum closing at 19,830 yuan/mt, up 40 yuan/mt from the previous trading day. The aluminum scrap market remained largely stable, with baled UBC prices rising by about 50 yuan/mt compared to the previous day, mainly due to tight raw material supply and limited improvement in supply as overseas markets entered the holiday season. On Wednesday, baled UBC aluminum scrap was quoted at 14,750-15,725 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 16,000-17,300 yuan/mt (liquid aluminum, excluding tax). In the short term, the overall supply in the aluminum scrap spot market remains limited. Downstream buyers, having restocked at low prices earlier, showed weak purchase willingness for higher-priced aluminum scrap, leading to muted market transactions. The price difference between primary metal and scrap is expected to narrow.

Secondary Aluminum Alloy: On Wednesday, aluminum prices fluctuated rangebound, with SMM A00 aluminum prices rising by 40 yuan/mt from the previous day to 19,830 yuan/mt, while secondary aluminum prices remained largely stable. Domestically, large secondary aluminum enterprises maintained quotes at 20,500-20,800 yuan/mt, while small and medium-sized plants kept quotes at 20,200-20,400 yuan/mt. For imports, overseas ADC12 prices were in the range of $2,430-2,460/mt. Due to stable domestic and overseas prices and recent exchange rates, the immediate loss per ton for imported ADC12 remained within 400 yuan. On Wednesday, aluminum price fluctuations were minimal, and secondary aluminum market quotes were basically stable. Currently, secondary aluminum plants face high costs, with some enterprises reducing operating rates due to raw material shortages or environmental protection-related controls. Both finished product inventories at secondary aluminum plants and inventories held by traders have declined. In the short term, secondary aluminum alloy prices are expected to be more likely to rise than fall.

Summary: Macro front, market expectations for the extent of US Fed interest rate cuts next year remain pessimistic, with the US dollar index hovering near its two-year high, putting pressure on base metals. Fundamentals side, domestic aluminum supply pressure has eased recently, with a slight decline in operating capacity. Some aluminum smelters in Sichuan and Guangxi have reported capacity technological transformations or production cuts due to losses. On the demand side, market demand continues to weaken during the off-season, with sluggish performance in the aluminum plate/sheet and strip and aluminum extrusion sectors, and strong expectations for inventory buildup. Overall, macro uncertainties around the pace of US Fed interest rate cuts and weak demand during the off-season, despite slightly reduced supply pressure, contribute to growing risks of inventory buildup in social stocks. 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 unrelated to SMM.】