US Fed's Interest Rate Cut Pace Unclear, Domestic Efforts Continue to Boost Consumption [SMM Aluminum Morning Meeting Summary]

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January 13 SMM Aluminum Morning Meeting Summary 

Futures Market: Last Friday night, the most-traded SHFE aluminum 2502 contract opened at 20,230 yuan/mt, hitting a high of 20,250 yuan/mt and a low of 20,125 yuan/mt, and closed at 20,185 yuan/mt, up 40 yuan/mt or 0.20%. Last Friday, LME aluminum opened at $2,545/mt, reached a high of $2,596/mt and a low of $2,539/mt, and closed at $2,568.5/mt, up $20.5/mt or 0.80%. 

Macro: (1) In December last year, US non-farm payrolls increased by 256,000, significantly exceeding the expected 160,000. Traders no longer bet on two US Fed interest rate cuts within the year (bullish★); (2) The US announced a new round of sanctions on the Russian economy (neutral); (3) Ministry of Finance: Fiscal policy in 2025 will be very proactive (bullish★).

Fundamentals Side: (1) On January 3, the National Development and Reform Commission stated that in 2024, energy-saving and carbon reduction efforts will be vigorously promoted, with annual energy intensity expected to decline by more than 3%, exceeding the annual target (bullish★); (2) According to the Passenger Car Association, the national passenger car market recorded cumulative annual retail sales of 22.894 million units, up 5.5% YoY (bullish★).

Primary Aluminum Market: Last Friday morning, the center of the SHFE aluminum front-month contract once again broke through the 20,000 yuan/mt threshold. In east China, some enterprises have gradually entered the Chinese New Year holiday mode, leading to weakening demand. Earlier, due to limited market arrivals and substitution between primary metal and scrap, inventory was reduced, boosting suppliers' confidence to stand firm on quotes. During the day, as aluminum prices surged, demand weakened again, and market discounts widened. SMM A00 aluminum ingot was quoted at a discount of 40 yuan/mt to the SHFE aluminum 2501 contract, 10 yuan/mt wider than the previous trading day. SMM A00 aluminum ingot recorded 19,980 yuan/mt, up 310 yuan/mt from the previous trading day. In central China, mainstream warehouse daily inventory decreased by 8,500 mt to 54,200 mt. With the full lifting of environmental protection measures and pre-holiday restocking by some small and medium-sized enterprises, spot supply tightened. Earlier low-price purchasing traders began arbitrage sales after aluminum prices broke through 20,000 yuan/mt, offering discounts, but prices remained above downstream psychological price levels, resulting in weak transactions.

Secondary Aluminum Raw Materials: Last Friday, aluminum prices rose sharply, with SMM A00 spot aluminum closing at 19,980 yuan/mt, up 310 yuan/mt from the previous trading day. The aluminum scrap market overall raised quotations. Baled UBC aluminum scrap prices increased by 100 yuan/mt to 14,750-15,625 yuan/mt (excluding tax), while shredded aluminum tense scrap prices rose by 100 yuan/mt to 16,100-17,600 yuan/mt (excluding tax). As aluminum prices rebounded to near 20,000 yuan/mt, the aluminum scrap market actively raised quotations, but the overall increase was weaker than aluminum prices, slightly widening the price difference between primary metal and scrap. With the Chinese New Year holiday approaching, traders showed reluctance to sell, and some small factories began to close for the holiday, tightening market supply. Overall transactions were moderate. In the short term, the price difference between primary metal and scrap is expected to fluctuate rangebound.

Secondary Aluminum Alloy: Last Friday, the most-traded SHFE aluminum contract rose strongly, with futures prices once again surging above the 20,000 yuan/mt threshold. SMM A00 aluminum prices increased by 310 yuan/mt to 19,980 yuan/mt, and secondary aluminum prices generally followed the rise. Domestically, large secondary aluminum enterprises raised quotations by 100-200 yuan/mt to 20,700-20,900 yuan/mt, while small and medium-sized factories raised quotations by 100 yuan/mt to 20,400-20,600 yuan/mt. On the import side, overseas prices for imported ADC12 ranged from $2,430-2,460/mt, with immediate import losses narrowing slightly to within 500 yuan/mt. With aluminum prices rising rapidly, the secondary aluminum market showed strong sentiment for price adjustments, with manufacturers generally raising prices by 100-200 yuan/mt. Currently, raw material supply remains tight, pre-holiday restocking by secondary aluminum plants is hindered, and both plant 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: Macro factors are mixed, with the Chinese government continuing efforts to boost consumption, while uncertainty remains over the pace of US Fed interest rate cuts. Fundamentals side, primary aluminum capacity remained stable in early January, while alumina fundamentals continued to show a slight surplus, with spot alumina prices likely to continue their downward trend in the short term. On the cost side, the aluminum industry's costs are expected to keep declining. Demand side, market demand continues to weaken during the off-season, with operating rates in the aluminum processing industry declining steadily. Some aluminum processing plants are nearing holiday closures. Although pre-holiday concentrated restocking has led to inventory reductions exceeding expectations, providing short-term support for aluminum prices, the sustainability of this trend is expected to be limited. Key points to watch include the impact of falling spot alumina prices on primary aluminum costs, as well as downstream holiday schedules and the continuity of pre-holiday restocking.

 【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.】