Downstream Demand Continues to Weaken, Overnight Aluminum Prices Fluctuate Rangebound [SMM Aluminum Morning Meeting Summary]

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12.31 SMM Aluminum Morning Meeting Summary  

Futures Market: Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,805 yuan/mt, hitting a high of 19,815 yuan/mt and a low of 19,750 yuan/mt, before closing at 19,765 yuan/mt, down 40 yuan/mt or 0.20% from the previous trading day. On Monday, LME aluminum opened at $2,551/mt, reached a high of $2,567/mt and a low of $2,544.5/mt, and closed at $2,550/mt, down $7/mt or 0.27%.

Macro Front: (1) The US Treasury Secretary announced an additional $3.4 billion in budgetary aid to Ukraine (bullish ★); (2) The bond issuance volume of three policy banks in Q1 next year is expected to hit a record high (bullish ★). 

Fundamentals Side: (1) According to SMM statistics, the PMI composite index of China's aluminum processing industry recorded 42.6% in December 2024, down 4.7 percentage points MoM, remaining below the 50 mark (bearish ★★); (2) On December 30, 2024, the Customs Tariff Commission of the State Council announced that starting January 1, 2025, import tariff rates and tariff items for certain goods would be adjusted. Import tariffs on unalloyed aluminum, secondary aluminum alloy raw materials (aluminum scrap), and alumina raw materials remain unchanged at a provisional rate of 0% (neutral); (3) The Ministry of Finance stated that NEVs should account for no less than 30% of the total annual procurement of government vehicles in principle (bullish ★).

Primary Aluminum Market: On Monday morning, SHFE aluminum prices fluctuated around the daily moving average of 19,750 yuan/mt. Specifically, in east China, suppliers increased their selling activity due to weaker expectations for spot market premiums, while spot premiums remained stable. On Monday, the SMM A00 aluminum ingot price recorded 19,700 yuan/mt, down 30 yuan/mt from the previous trading day, with a discount of 20 yuan/mt against the most-traded SHFE aluminum 2501 contract, unchanged from the previous trading day. In central China, the holiday atmosphere began to emerge, with some small processing enterprises gradually entering the Chinese New Year holiday mode, leading to weaker market demand. The price spread between Henan and east China widened to a discount of around 90 yuan/mt. 

Secondary Aluminum Raw Materials: On Monday, the SMM A00 spot price closed at 19,700 yuan/mt, down 30 yuan/mt from the previous trading day. Most aluminum scrap prices remained stable, with baled UBC aluminum scrap quoted at 14,750-15,755 yuan/mt (excluding tax) and shredded aluminum tense scrap quoted at 16,000-17,300 yuan/mt (liquid aluminum, excluding tax). Currently, the domestic and overseas circulation of aluminum scrap remains tight. Coupled with the continued decline in aluminum prices, traders showed moderate selling sentiment, while market participants adopted a wait-and-see approach due to the implementation of reverse invoicing in some regions starting January 1. In the short term, the overall supply of aluminum scrap in the spot market remains limited, with downstream scrap utilisation enterprises actively restocking, providing support for aluminum scrap prices. The price difference between primary metal and scrap is expected to narrow. 

Secondary Aluminum Alloy: On Monday, aluminum prices fluctuated rangebound, with the SMM A00 aluminum price down 30 yuan/mt from last Friday to 19,700 yuan/mt, while secondary aluminum prices remained stable. Domestically, large secondary aluminum enterprises maintained quotes at 20,500-20,800 yuan/mt, while small and medium-sized enterprises quoted 20,200-20,400 yuan/mt. For imports, overseas ADC12 prices ranged from $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 at 300-400 yuan. On Monday, aluminum prices continued to decline, leaving secondary aluminum plants with little incentive to adjust prices. Currently, the aluminum scrap supply remains tight, and secondary aluminum plants face high production costs. Additionally, many secondary aluminum plants reported that reverse invoicing would be fully implemented after January, with attention on its implementation during the week. Some enterprises have reduced operating rates due to raw material shortages or environmental protection-related controls. Finished product inventories at manufacturers remain low, and secondary aluminum alloy prices are expected to be more likely to rise than fall in the short term. 

Summary: On the macro front, the European Central Bank may slow its pace of 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, multiple 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 operating rates in the aluminum processing industry declining further. Overall, the macro front remains uncertain with the US Fed's unclear rate cut pace and the European Central Bank's delayed rate cuts. On the fundamentals side, although supply-side pressure has slightly eased, weak demand during the off-season and growing risks of inventory buildup in social warehouses continue to weigh on the market. 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 cautious decisions and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.]