US Tariff Policy Uncertainty Drives US Dollar Index Up, Aluminum Prices Under Pressure [SMM Aluminum Morning Meeting Summary]

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January 9 SMM Aluminum Morning Meeting Summary

Futures Market: Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,670 yuan/mt, hit a high of 19,680 yuan/mt, a low of 19,610 yuan/mt, and closed at 19,675 yuan/mt, down 55 yuan/mt or 0.28%. Yesterday, LME aluminum opened at $2,522/mt, reached a high of $2,529/mt, a low of $2,490/mt, and closed at $2,508/mt, down $14.5/mt or 0.57%.

Macro Front: (1) In the past two weeks, two important meetings held by the central bank both proposed "timely RRR cuts and interest rate cuts." This sends a clear signal of strengthening monetary policy adjustments, and further RRR cuts and interest rate cuts this year are expected. (Bullish ★); (2) The US Fed released the minutes of its December monetary policy meeting on its official website. The minutes indicated that, considering the still-high inflation risks, Fed officials adopted a new stance on interest rate cuts, deciding to slow the pace of rate cuts in the coming months. (Bearish ★)

Fundamentals Side: (1) As downstream profile plants are set to begin their holidays next week (January 14/15), weakening demand is inevitable. Suppliers accelerated their shipment pace, with all three regions showing a volume discount trend. (Bearish ★); (2) On January 8, LME aluminum inventory decreased by 2,500 mt to 621,775 mt. (Bullish ★); (3) According to SMM statistics, on January 8, aluminum ingot inventories were 113,800 mt in Guangdong, 156,100 mt in Wuxi, and 63,900 mt in Gongyi, with total inventories across the three regions down by 15,700 mt compared to the previous trading day. (Bullish ★)

Primary Aluminum Market: On Wednesday morning, the front-month SHFE aluminum contract fluctuated downward below the daily moving average, operating around 19,680 yuan/mt. In the spot market, some enterprises in east China have gradually entered the Chinese New Year holiday mode, leading to weakening demand and continued declines in market premiums. SMM A00 aluminum was at a discount of 30 yuan/mt to the SHFE aluminum 2501 contract, down 10 yuan/mt from the previous trading day, while SMM A00 aluminum ingot was recorded at 19,640 yuan/mt, unchanged from the previous trading day. In central China, daily inventory at major warehouses decreased by 4,900 mt to 63,900 mt. With environmental protection measures fully lifted and some small and medium-sized enterprises stocking up before the holiday, spot supply tightened, boosting suppliers' confidence to stand firm on quotes. However, with a new round of environmental protection measures potentially starting, the market is expected to weaken again under the holiday atmosphere.

Aluminum Scrap Market: On Wednesday, aluminum prices fluctuated within a narrow range, with SMM A00 spot aluminum closing at 19,640 yuan/mt, unchanged from the previous trading day. The aluminum scrap market remained stable. Baled UBC aluminum scrap was quoted at 14,750-15,525 yuan/mt (excluding tax), unchanged from the previous day, while shredded aluminum tense scrap was quoted at 16,000-17,300 yuan/mt (excluding tax). With aluminum prices flat compared to the previous day, aluminum scrap prices showed little fluctuation. Currently, aluminum scrap circulation remains tight, and considering that aluminum scrap traders typically enter the Chinese New Year holiday earlier than downstream enterprises, scrap utilisation enterprises are actively stocking up, providing some support for aluminum scrap prices. In the short term, the price difference between primary metal and scrap is expected to fluctuate rangebound.

Secondary Aluminum Alloy: On Wednesday, aluminum prices fluctuated within a narrow range, with SMM A00 aluminum prices stable at 19,640 yuan/mt, and secondary aluminum prices generally steady. Domestically, large secondary aluminum enterprises quoted prices at 20,500-20,800 yuan/mt, while medium and small enterprises quoted prices at 20,300-20,500 yuan/mt. For imports, overseas prices for ADC12 were in the range of $2,430-2,460/mt, with an immediate loss of around 500 yuan/mt per ton for imports. On Wednesday, the secondary aluminum market remained stable, with manufacturers' quotes unchanged from the previous day. Currently, raw material supply remains tight, production costs for secondary aluminum plants are high, and finished product inventories are relatively low, providing some support for secondary aluminum alloy prices. In the short term, ADC12 prices are expected to remain more likely to rise than fall.

Summary: On the macro front, the Chinese government continues to focus on boosting consumption, while uncertainty over the pace of US Fed rate cuts has increased. On the fundamentals side, although several 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 continued to weaken during the off-season, with operating rates in the aluminum processing industry declining steadily. Some aluminum processing plants are nearing their holidays, and social inventories of aluminum ingots and billets are building up. Overall, on the fundamentals side, supply-side pressure has slightly eased, but weak demand during the off-season and the risk of inventory buildup persist. 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 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 prudent decisions and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.]