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1.22 SMM Aluminum Morning Meeting Notes

Futures Market: Overnight, the most-traded SHFE aluminum 2503 contract opened at 20,335 yuan/mt, hit a high of 20,375 yuan/mt, a low of 20,280 yuan/mt, and closed at 20,340 yuan/mt, down 75 yuan/mt or 0.36%. On Wednesday, LME aluminum opened at $2,681/mt, reached a high of $2,692/mt, a low of $2,632/mt, and closed at $2,651.5/mt, down $36/mt or 1.34%.

Macro: (1) Trump signed over 40 executive orders on his first day in office; Rubio was sworn in as US Secretary of State. (Neutral); (2) Trump announced an investigation into China's trade practices but did not introduce new tariff measures, with a response from the Ministry of Foreign Affairs. (Bearish★); (3) A relevant official from the Ministry of Industry and Information Technology (MIIT) stated at the "Achievements of China's High-Quality Economic Development" press conference that the next step will focus on implementing existing and incremental policies to promote steady and positive industrial economic growth. A new round of work plans for stabilizing growth in ten key industries will be launched, along with efforts to accelerate large-scale equipment upgrades and trade-in of consumer goods, and planning for major investment projects under the "15th Five-Year Plan." (Bullish★)

Fundamentals: (1) Inventory: According to SMM statistics, as of January 21, aluminum ingot inventory in Guangdong was 123,800 mt; in Wuxi, 144,000 mt; and in Gongyi, 50,600 mt, with a total increase of 100 mt compared to the previous trading day. For domestic aluminum billet inventory, Guangdong recorded 83,100 mt, and Wuxi 45,000 mt, with a total increase of 6,800 mt. (Bearish★); (2) According to the National Bureau of Statistics (NBS), China's aluminum semis and alumina production both increased over the past year. Cumulative aluminum semis production reached 67.831 million mt, up 7.7% YoY, while alumina production totaled 85.522 million mt, up 3.9% YoY. Among provinces and cities, Shandong ranked first with 14.6986 million mt, followed by Henan with 12.0841 million mt, and Guangdong with 5.4573 million mt. (Neutral); (3) Secondary aluminum alloy enterprises' holiday schedules: Most enterprises began their holiday after January 20. SMM learned that 14% of enterprises (mainly small and medium-sized enterprises or those in north China) started their holiday between January 10 and 15, 70% stopped operations between January 20 and 26, and 14% (mainly large enterprises or those with direct liquid aluminum supply) began their holiday after January 27 (the 28th day of the lunar month). (Bearish★)

Primary Aluminum Market: On Tuesday morning, the SHFE front-month aluminum contract fluctuated, with aluminum ingot social inventory shifting to an inventory buildup. Wuxi's inventory continued to decline, and market buying sentiment improved, narrowing spot discounts and boosting active trading. Specifically, trading in east China was robust, mainly due to the ongoing inventory decline in Wuxi and insufficient arrivals in north-west China, leading to tight market supply. Traders were purchasing for long-term contracts, and downstream stocking demand remained, narrowing spot discounts. On Tuesday, SMM A00 aluminum ingot was at a discount of 50 yuan/mt against the SHFE 2502 contract, up 10 yuan/mt from the previous trading day. SMM A00 aluminum ingot recorded 20,320 yuan/mt, up 60 yuan/mt from the previous trading day. In central China, downstream buying sentiment weakened due to the Chinese New Year break, with some enterprises taking the opportunity for technological transformation, reducing purchase willingness. Traders accelerated shipments, widening discounts in the central China market.

Secondary Aluminum Raw Materials: On Tuesday, primary aluminum spot prices rose by 60 yuan/mt from the previous trading day, with SMM A00 spot closing at 20,320 yuan/mt. Aluminum scrap market prices fluctuated rangebound with aluminum prices. Fundamentals remained tight in supply in the short term, with small and medium-sized suppliers clearing inventory and mostly entering the holiday period, while medium and large enterprises continued trading with minimal price fluctuations, following aluminum price trends. On Tuesday, baled UBC aluminum scrap was quoted at 14,850-15,700 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 16,350-17,850 yuan/mt (liquid aluminum, excluding tax). As the Chinese New Year holiday approached, traders gradually entered the holiday period, tightening market supply. Overall transactions were moderate, with primary aluminum prices maintaining an upward trend. In the short term, the price difference between primary metal and scrap is expected to fluctuate.

Secondary Aluminum Alloy: On Tuesday, aluminum prices slightly rebounded, with SMM A00 aluminum prices rising by 60 yuan/mt from the previous trading day to 20,320 yuan/mt, while secondary aluminum prices remained largely stable. Domestically, large secondary aluminum enterprises quoted prices at 20,800-21,100 yuan/mt, while small and medium-sized enterprises maintained quotes at 20,500-20,700 yuan/mt. For imports, ADC12 overseas prices were in the range of $2,440-2,470/mt. Due to a sharp drop in the US dollar index, the RMB/USD exchange rate surged to a one-month high, significantly narrowing the immediate loss on imported ADC12 to within 100 yuan, nearing the break-even point. On Tuesday, aluminum prices slightly rebounded, and secondary aluminum plants generally maintained a wait-and-see approach. Since the beginning of the week, secondary aluminum plants have gradually stopped taking orders and entered the holiday period. With downstream stocking largely completed and downstream production halting for the holiday, market transactions have gradually weakened, with a growing disparity between quoted and actual prices. ADC12 prices are expected to fluctuate within a narrow range this week.

Summary: Macro side, with Trump officially taking office, market sentiment remained uncertain regarding tariff policies, leading to fluctuations in the US dollar index and putting pressure on base metals. Fundamentals side, supply disruptions decreased, and with ample supply, the cost side of the aluminum industry eased significantly. The immediate full average cost of domestic aluminum fell to around 19,000 yuan/mt. Specifically, alumina costs accelerated downward over the past week, with reduced purchase willingness for high-priced alumina in the market. Spot alumina prices are expected to continue declining, weakening cost support for aluminum. On the demand side, as the Chinese New Year holiday approaches, aluminum processing plants began their holiday this week, leading to a noticeable weakening in demand. Social inventory may enter the Chinese New Year inventory buildup cycle. In the short term, attention should focus on the pace of changes in domestic and overseas macro sentiment, the impact of falling spot alumina prices on aluminum costs, and the continuation of downstream holiday schedules and pre-holiday stocking.

[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.]