Multiple Regions Introduce Subsidy Measures; Spot Market Supply Remains Tight [SMM Aluminum Morning Brief]

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1.3 SMM Aluminum Morning Meeting Summary  

Futures Market: Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,915 yuan/mt, hit a high of 20,025 yuan/mt, a low of 19,915 yuan/mt, and closed at 19,960 yuan/mt, up 15 yuan/mt or 0.08%. On Thursday, LME aluminum opened at $2,554/mt, reached a high of $2,574/mt, a low of $2,527.5/mt, and closed at $2,529/mt, up $26.5/mt or 0.92%.

Macro Front: (1) During his survey in Shandong, Qiang Li emphasized the need to continue implementing trade-in policies for consumer goods this year, vigorously promote the construction of battery swapping infrastructure, and improve supporting policies (bullish★); (2) ECB Governing Council Member: Interest rates are expected to be lowered to 2% by this autumn (bullish★).

Fundamentals Side: (1) Although the national-level policies for 2025 are not yet clear, many regions have introduced local subsidy measures (bullish★); (2) On December 27, 2024, the Mexican Ministry of Economy announced that, as no domestic producers had filed a sunset review request for the anti-dumping measures on aluminum foil originating from China (Spanish: bobinas de papel aluminio), the anti-dumping measures on the products in question would be terminated starting December 28, 2024 (bullish★).

Primary Aluminum Market: On Thursday morning, SHFE aluminum surged above the daily average line to around 19,890 yuan/mt, fluctuating at highs. In the spot market, east China saw slight destocking, with stockpiling during the New Year holiday boosting outflows from warehouses. Market liquidity was slightly tight, and traders stood firm on quotes, narrowing discounts to parity. On Thursday, SMM A00 aluminum was on par with the SHFE aluminum 2501 contract, up 10 yuan/mt from the previous trading day. SMM A00 aluminum ingot recorded 19,870 yuan/mt, up 100 yuan/mt from the previous trading day. In central China, inventory declines also supported stable picking up goods by long-term contract customers, narrowing the Henan-Shanghai price spread to a discount of around 100 yuan/mt.

Secondary Aluminum Raw Materials: On Thursday, aluminum prices continued to rebound, with SMM A00 spot aluminum closing at 19,870 yuan/mt, up 100 yuan/mt. Aluminum scrap prices remained stable or slightly followed the increase. Baled UBC aluminum scrap was quoted at 14,750-15,825 yuan/mt (tax excluded), unchanged from the previous day, while shredded aluminum tense scrap rose by 100 yuan/mt to 16,100-17,400 yuan/mt (liquid aluminum, tax excluded). In the short term, the circulation of aluminum scrap, especially aluminum tense scrap, remains tight, leading to faster price increases in line with aluminum prices. Downstream scrap utilization enterprises actively restocked, providing support for aluminum scrap prices. The price difference between primary metal and scrap saw narrow adjustments.

Secondary Aluminum Alloy: On Thursday, aluminum prices extended their gains, with SMM A00 aluminum prices rising by 100 yuan/mt to 19,870 yuan/mt, prompting secondary aluminum prices to follow suit. Domestically, large secondary aluminum producers raised quotes by 0-100 yuan/mt to 20,600-20,900 yuan/mt, while small and medium-sized producers increased quotes by 0-100 yuan/mt to 20,300-20,500 yuan/mt. For imports, overseas ADC12 prices ranged from $2,430-2,460/mt, with immediate losses per ton for imported ADC12 remaining around 400 yuan. The two-day rally in aluminum prices spurred the secondary aluminum market to actively raise prices. Currently, aluminum scrap supply remains tight, and secondary aluminum producers face high production costs. Some enterprises have reduced operating rates due to raw material shortages or environmental protection-related controls, with finished product inventories remaining low. In the short term, secondary aluminum alloy prices are expected to be more likely to rise than fall.

Summary: On the macro front, the ECB and US Fed may slow the pace of future interest rate cuts, while the Chinese government continues to focus on boosting consumption. On the fundamentals side, although multiple aluminum smelters in Sichuan and Guangxi reduced production in December, and some capacity resumption progress stalled, production still showed YoY growth. On the demand side, market demand weakened further during the off-season, with operating rates in the aluminum processing industry declining steadily as some aluminum processing plants approached holiday closures. Overall, on the fundamentals side, supply-side pressure eased slightly, but weak demand during the off-season and the risk of inventory buildup in social stocks persisted. In the short term, aluminum prices are expected to fluctuate downward. In the long term, attention should be paid to changes in the US Fed's future interest rate cut stance and the pace of consumption recovery.

【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.】