Downstream Demand Continues to Decline, Spot Market Trading Weakens [SMM Aluminum Morning Brief]

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January 15 SMM Aluminum Morning Briefing 

Futures Market: Overnight, the most-traded SHFE aluminum 2503 contract opened at 20,285 yuan/mt, hitting a high of 20,300 yuan/mt and a low of 20,185 yuan/mt, before closing at 20,230 yuan/mt, down 70 yuan/mt or 0.35%. Overnight, LME aluminum opened at $2,575/mt, peaked at $2,602/mt, bottomed at $2,553/mt, and closed at $2,573.5/mt, unchanged from the previous trading day. 

Macro: (1) The US December PPI data recorded 3.3%, below the expected 3.4%, falling short of expectations but failing to ease inflation concerns (neutral); (2) The central bank reported that the total increase in social financing for 2024 amounted to 32.26 trillion yuan, 3.32 trillion yuan less than the previous year. At the end of December, the broad money (M2) balance stood at 313.53 trillion yuan, up 7.3% YoY (bullish★).

Fundamentals Side: (1) The Ministry of Natural Resources announced significant breakthroughs in the exploration of major mineral resources such as copper, aluminum, and iron in China, with a substantial increase in resource reserves (bearish★); (2) According to foreign media on January 13, participants in the European aluminum billet market entered 2025 cautiously, with conservative purchasing behavior and persistently weak demand (bearish★).

Primary Aluminum Market: On Tuesday morning, the SHFE front-month aluminum contract fluctuated upward. Daily aluminum ingot inventory in three domestic regions showed a slight destocking trend, but the reduction was limited compared to last week's significant decrease. This was mainly due to downstream processing plants gradually entering the holiday period this week and unresolved railway transportation costs in Qinghai, leading to slight stockpiling of local supplies. Specifically, trading activity weakened in east China, primarily due to downstream holidays and earlier low-price stockpiling. After aluminum prices broke 20,000 yuan/mt, purchasing willingness declined. On Tuesday, the SMM A00 aluminum ingot was at a discount of 70 yuan/mt against the SHFE 2501 contract, down 20 yuan/mt from the previous trading day. The SMM A00 aluminum ingot price was recorded at 20,160 yuan/mt, up 10 yuan/mt from the previous trading day. In central China, downstream demand weakened, but suppliers aimed to maintain premiums due to low inventory levels, limiting the expansion of discounts.

Secondary Aluminum Raw Materials: On Tuesday, primary aluminum spot prices rose 10 yuan/mt from the previous trading day, with the SMM A00 spot price closing at 20,160 yuan/mt. Aluminum scrap market prices were largely stable, with baled UBC prices up 100 yuan/mt from the previous day, mainly due to tight upstream supply and sustained downstream demand, with undersupply persisting. Suppliers showed reduced willingness to sell, as small and medium-sized enterprises entered the holiday period, while large enterprises focused on stable long-term contract supply. Overall, pre-holiday downstream stockpiling enthusiasm remained low. On Tuesday, baled UBC aluminum scrap was quoted at 14,850-15,725 yuan/mt (tax excluded), and shredded aluminum tense scrap was quoted at 16,250-17,750 yuan/mt (liquid aluminum, tax excluded). As the Chinese New Year holiday approached, traders exhibited reluctance to sell, with some small plants gradually entering the holiday period, tightening market supply and leading to moderate transactions. In the short term, the price difference between primary metal and scrap is expected to fluctuate rangebound. 

Secondary Aluminum Alloy: On Tuesday, aluminum price increases slowed, with the SMM A00 aluminum price up 10 yuan/mt from the previous trading day to 20,160 yuan/mt, stabilizing secondary aluminum prices. Domestically, large secondary aluminum enterprises maintained stable quotes at 20,800-21,000 yuan/mt, while small and medium-sized enterprises kept quotes steady at 20,500-20,700 yuan/mt. For imports, overseas ADC12 prices slightly ranged between $2,440-2,470/mt, with immediate import losses remaining around 500 yuan/mt. On Tuesday, aluminum price fluctuations were minimal, and secondary aluminum market quotes stopped rising and stabilized. As the Chinese New Year approached, upstream aluminum scrap traders gradually entered the holiday period, tightening market supply and causing difficulties in pre-holiday raw material stocking for secondary aluminum plants. On the demand side, due to pre-holiday market fluctuations, downstream stockpiling sentiment was weak, with die-casting plants only engaging in minimal stockpiling. High costs and low inventory provided some support for secondary aluminum alloy prices, and ADC12 prices are expected to remain more likely to rise than fall in the short term. 

Summary: Currently, macro factors are mixed. The Chinese government continues efforts to boost consumption, regional conflicts remain unresolved, and uncertainty persists regarding the US Fed's interest rate cut pace. Fundamentals side, early January aluminum capacity remained largely stable, while alumina fundamentals showed 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. On the demand side, market demand weakened during the off-season, with operating rates in the aluminum processing industry declining steadily. Some aluminum processing plants are nearing the holiday period. Although pre-holiday concentrated stockpiling led to an unexpected inventory reduction, its sustainability is expected to be limited. Key areas to watch include the impact of falling spot alumina prices on aluminum costs, as well as downstream holiday schedules and the continuation of pre-holiday stockpiling trends.

[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.]