Aluminum Production Up YoY, ECB Interest Rate Cut May Slow Down [SMM Aluminum Morning Meeting Summary]

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December 30 SMM Aluminum Morning Briefing 

Futures Market: Last Friday night, the most-traded SHFE aluminum 2502 contract opened at 19,775 yuan/mt, hit a high of 19,785 yuan/mt, a low of 19,700 yuan/mt, and closed at 19,785 yuan/mt, down 10 yuan/mt or 0.05% from the previous trading day. Last Friday, LME aluminum opened at $2,553/mt, reached a high of $2,562/mt, a low of $2,533.5/mt, and closed at $2,557/mt, up $1/mt or 0.04%.

Macro Front: (1) The European Central Bank may consider waiting longer before the next interest rate cut (bearish★★); (2) Pan Gongsheng: Strengthen the intensity of monetary policy adjustments and improve the precision of monetary policy regulation (bullish★) 

Fundamentals Side: (1) According to SMM statistics, domestic aluminum production in December 2024 (31 days) increased by 4.13% YoY, and cumulative production from January to December 2024 rose by 3.89% YoY (bearish★★); (2) By the end of December, SMM statistics showed that domestic aluminum existing capacity was approximately 45.71 million mt, with operating capacity around 43.53 million mt, and the industry's operating rate increased by 2.49 percentage points YoY to 95.38% (bearish★); (3) According to SMM statistics, the operating rate of leading aluminum processing enterprises last week was recorded at 61.1%, down 1.2 percentage points WoW, with the downward trend further expanding (bearish★).

Primary Aluminum Market: Last Friday morning, the most-traded SHFE aluminum contract fluctuated, and as the weekend approached, the futures market center shifted downward, with moderate trading in the spot market. Specifically, in east China, suppliers' inventories declined, and downstream buying sentiment improved, narrowing the discount to the SMM average price to around +10 yuan/mt. Additionally, as year-end approaches, market transactions may decrease, and SMM will continue to monitor subsequent trading conditions and the signing of new long-term contracts. In central China, spot aluminum prices remained at low levels recently, with suppliers' inventories declining and tight market circulation. The Henan-Shanghai price spread widened, with a discount of about 80 yuan/mt last Friday. Market transactions showed initial signs of weak downstream demand, but low inventories provided price support. 

Secondary Aluminum Raw Materials: Last Friday, primary aluminum spot prices fell by 90 yuan/mt compared to the previous day, with SMM A00 spot aluminum closing at 19,730 yuan/mt, down 90 yuan/mt from the previous trading day. The aluminum scrap market was largely stable, with baled UBC prices rising by 50 yuan/mt compared to the previous day. Currently, large domestic enterprises are executing long-term contracts as usual, while small enterprises remain cautious, with some engaging in year-end stockpiling. Last Friday, baled UBC aluminum scrap was quoted at 14,750-15,755 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 of aluminum scrap in the spot market remains limited. Downstream restocking at low prices earlier has reduced purchase willingness for high-priced aluminum scrap, leading to weak overall market transactions. The price difference between primary metal and scrap in east China is expected to narrow. 

Secondary Aluminum Alloy: Last week, secondary aluminum alloy prices were more likely to rise than fall, with SMM ADC12 prices up 100 yuan/mt WoW to 20,800 yuan/mt. On the cost side, driven by order deliveries and pre-holiday stocking demand, secondary aluminum plants actively sourced materials in the market. However, insufficient aluminum scrap supply and low selling sentiment among traders continued to pose challenges for raw material procurement. On the production side, raw material shortages and environmental protection-related controls further dragged down the operating rates of secondary aluminum plants. Overall, as the market approaches January, aluminum scrap supply may tighten again, and secondary aluminum alloy prices are expected to remain resilient, with a tendency to rise rather than fall. 

Summary: On the macro front, the European Central Bank may delay its interest rate cuts, and market expectations for the extent of US Fed rate cuts next year remain pessimistic, putting continued pressure on base metals. On the fundamentals side, in December, several aluminum smelters in Sichuan and Guangxi reduced production, while some capacity restarts were delayed. However, production still showed YoY growth. On the demand side, market demand continued to weaken during the off-season, with aluminum processing industry operating rates declining further. Overall, with unclear US Fed rate cut timing and delayed European Central Bank rate cuts on the macro front, and despite slightly reduced supply-side pressure on the fundamentals side, weak demand during the off-season and growing risks of inventory buildup in social stocks are expected to keep aluminum prices fluctuating downward in the short term.

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