Demand Decline in Off-Season; Aluminum Prices Rebound in the Short Term but Sustainability Remains Uncertain [SMM Aluminum Morning Meeting Summary]

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January 10 SMM Aluminum Morning Briefing

Futures Market: The most-traded SHFE aluminum 2502 contract opened at 19,960 yuan/mt overnight, hitting a high of 20,055 yuan/mt and a low of 19,930 yuan/mt, before closing at 20,015 yuan/mt, up 70 yuan/mt or 0.35%. Yesterday, LME aluminum opened at $2,505/mt, reached a high of $2,548/mt and a low of $2,502/mt, and closed at $2,548/mt, up $40/mt or 1.59%.  

Macro: (1) National Bureau of Statistics: In December, CPI rose 0.1% YoY, and for the full year of 2024, China's CPI increased 0.2% YoY (bullish ★); (2) Bank of England Deputy Governor: Supports interest rate cuts but noted uncertainty about the pace of rate cuts (neutral).

Fundamentals: (1) According to SMM statistics, as of January 9, China's aluminum ingot social inventory stood at 459,000 mt, down 28,000 mt WoW (bullish ★); (2) According to SMM statistics, as of January 9, China's aluminum billet social inventory reached 137,000 mt, up 13,600 mt WoW (bearish ★); (3) According to SMM statistics, the operating rate of leading aluminum processing enterprises this week fell by 0.1 percentage points WoW to 60.3% (bullish ★).

Primary Aluminum Market: On Thursday morning, the front-month SHFE aluminum contract's center rose to around 19,750 yuan/mt. In the spot market, some enterprises in east China have gradually entered the Chinese New Year holiday mode, leading to weakening demand. However, due to limited market arrivals and substitution between primary and scrap aluminum, inventory was reduced, boosting suppliers' confidence to stand firm on quotes. SMM A00 aluminum was at a discount of 30 yuan/mt to the SHFE aluminum 2501 contract, flat compared to the previous trading day. SMM A00 aluminum ingot was recorded at 19,670 yuan/mt, up 30 yuan/mt from the previous trading day. In central China, weekly inventory at major warehouses decreased by 12,000 mt to 63,000 mt. With environmental protection measures fully lifted and some small and medium-sized enterprises stocking up before the holiday, spot supply tightened, and suppliers raised prices significantly. Premiums in central China rose sharply. On Thursday, the price spread between Henan and Shanghai narrowed to a discount of around 40 yuan/mt. SMM Central China A00 aluminum was recorded at 19,630 yuan/mt, up 50 yuan/mt from the previous trading day, with actual market transactions showing a premium of 30-40 yuan/mt over SMM Central China prices, up 20 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials: On Thursday, aluminum prices edged higher, with SMM A00 spot aluminum closing at 19,670 yuan/mt, up 30 yuan/mt from the previous trading day. The aluminum scrap market saw slight increases overall. Baled UBC aluminum scrap was quoted 0-100 yuan/mt higher than the previous day at 14,850-15,525 yuan/mt (excluding tax), while shredded aluminum tense scrap remained stable at 16,000-17,300 yuan/mt (excluding tax). Aluminum prices fluctuated rangebound, and aluminum scrap prices showed no significant volatility, mostly following the slight rise in aluminum prices. Currently, the aluminum scrap market remains tight in supply. Considering that aluminum scrap traders typically enter the Chinese New Year holiday earlier than downstream enterprises, downstream scrap utilization enterprises actively stock 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 Thursday, aluminum prices slightly rebounded, with SMM A00 aluminum prices rising by 30 yuan/mt from Wednesday to 19,670 yuan/mt. Secondary aluminum prices remained stable. Domestically, large secondary aluminum enterprises maintained quotes at 20,500-20,800 yuan/mt, while medium and small factories kept quotes steady at 20,300-20,500 yuan/mt. For imports, overseas ADC12 prices ranged from $2,430-2,460/mt, with an immediate loss of around 500 yuan/mt per ton for imports. Aluminum prices edged higher, and secondary aluminum factory quotes generally remained stable. However, as SHFE aluminum futures rose in the afternoon, some manufacturers began to follow the increase by 100 yuan/mt. Currently, raw material supply remains tight, and secondary aluminum factories face difficulties in sourcing raw materials. Both factory and social inventories are at low levels, 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 side, mixed factors are at play. The Chinese government continues to boost consumption, while uncertainty over the pace of US Fed interest rate cuts increases. Fundamentals side, primary aluminum capacity remained stable in early January, while alumina fundamentals showed a slight surplus. Spot alumina prices may continue their downward trend in the short term, and the cost side of the primary aluminum industry may keep declining. On the demand side, market demand weakened further during the off-season, with aluminum processing operating rates declining steadily. Some aluminum processing plants are nearing holiday closures. Although pre-holiday stocking led to unexpected inventory destocking, temporarily supporting aluminum prices, the sustainability of this trend is expected to be limited. Key areas to watch include the impact of falling spot alumina prices on the cost side of primary aluminum, as well as downstream holiday schedules and the continuation of pre-holiday stocking activities.

 【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.】