SHFE Aluminum Center Shifted Down Before the Holiday, Sluggish Market Transactions as Downstream Mostly Entered Holiday Mode [SMM Aluminum Morning Meeting Summary]

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1.27 SMM Aluminum Morning Meeting Notes

Futures Market: Last Friday night, the most-traded SHFE aluminum 2503 contract opened at the highest point of 20,425 yuan/mt, hit a low of 20,270 yuan/mt, and closed at 20,275 yuan/mt, down 125 yuan/mt or 0.61% from the previous settlement. Last Friday, LME aluminum opened at $2,628/mt, reached a high of $2,660.5/mt, a low of $2,622/mt, and closed at $2,631.5/mt, up $2/mt or 0.08%.

Macro Front: (1) Russian President Vladimir Putin stated on Friday that he is willing to discuss issues such as the Ukraine crisis and energy prices with US President Donald Trump. However, Putin noted that Ukrainian President Volodymyr Zelensky signed a decree prohibiting negotiations with him, complicating the possibility of talks with Ukraine. (Bearish★) (2) According to the latest data released by the State Taxation Administration, new tax reduction policies, including preferential deed tax rates for real estate transactions, were implemented nationwide starting December 1, 2024. In the first month of implementation, the tax reduction benefits continued to be released, promoting the stable and healthy development of the real estate market. Data shows that in the first month of the new real estate tax policy, tax reductions for home-buying families nationwide totaled 11.69 billion yuan. (Bullish★) (3) The Ministry of Commerce and seven other departments issued a notice on conducting pilot work for reforming automobile circulation and consumption, which mentioned stabilizing and expanding automobile consumption. It encouraged relevant regions to optimize car purchase and usage restrictions and promote refined and differentiated management of car purchase quotas. It also mentioned expanding the supply of used cars and supporting used car dealerships to grow stronger. (Bullish★)

Fundamentals Side: (1) Aluminum Production: According to SMM statistics, China's aluminum production in January 2025 (31 days) increased by 3.8% YoY but fell by 0.3% MoM. In February, domestic operating capacity of aluminum is expected to remain largely stable, with no production resumption plans for previously curtailed capacity. By the end of February, the annualized operating capacity of domestic aluminum is expected to remain at 43.51 million mt/year. (Neutral) (2) Alumina Production: SMM data shows that China's metallurgical-grade alumina production in January 2025 (31 days) increased by 1.63% MoM and 12.85% YoY. As of January 24, China's metallurgical-grade alumina existing capacity was approximately 104.02 million mt, with actual operating capacity up 1.43% MoM and an operating rate of 86.69%. In January, a new production line at an alumina refinery in Shandong began operation, with output expected by late January or early February. Other regions largely maintained stable operations. Additionally, alumina supply and demand shifted to a surplus during the month, leading to a rapid pullback in prices. Currently, there are no large-scale production cut expectations for alumina, and the spot market is expected to remain relatively loose in the short term, with prices likely to continue their downward trend. (Bearish★) (3) According to SMM statistics, as of January 23, aluminum ingot inventories were 131,100 mt in Guangdong, 146,800 mt in Wuxi, and 52,600 mt in Gongyi, with a total increase of 7,100 mt compared to the previous trading day. For domestic aluminum billet inventories, Guangdong recorded 94,400 mt, and Wuxi recorded 51,200 mt, with a total increase of 6,300 mt. (Bearish★)

Primary Aluminum Market: Last Friday, suppliers and downstream players in east China entered the Chinese New Year holiday, leading to sluggish market activity. SMM A00 aluminum was at a discount of 20 yuan/mt against the most-traded SHFE aluminum 2502 contract, unchanged from the previous trading day. SMM A00 aluminum ingot was recorded at 20,190 yuan/mt, down 10 yuan/mt from the previous trading day. In central China, the market showed weak supply and demand, with suppliers adopting a passive selling approach during the holiday. Actual transactions in the market were mainly at a premium of 20-40 yuan/mt against SMM central China prices. SMM central China A00 aluminum was recorded at 20,100 yuan/mt, up 10 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials: Last Friday, aluminum scrap prices fluctuated rangebound following aluminum prices. In the short term, the fundamentals remain weak on both supply and demand sides, as most suppliers have entered the holiday break, with only a few leading players continuing procurement and sales. Aluminum scrap prices remained largely stable. Baled UBC aluminum scrap was quoted at 14,850-15,700 yuan/mt (excluding tax), while shredded aluminum tense scrap was quoted at 16,350-17,850 yuan/mt (liquid aluminum, excluding tax).

Secondary Aluminum Alloy: As the Chinese New Year holiday approaches, most secondary aluminum plants have stopped taking orders and shut down for the holiday. Downstream stockpiling has also largely ended, and with downstream production halting for the holiday, market transactions have become increasingly sluggish. Pre-holiday ADC12 prices remained largely stable.

Summary: On the macro front, the market is betting that US tariffs may not be as extensive or broad as previously feared, leading to a weaker US dollar. On the fundamentals side, supply disruptions have decreased, and domestic aluminum operating capacity is expected to remain stable in February. The cost side of the aluminum industry has eased significantly, with the immediate full average cost dropping to 18,126 yuan/mt, weakening cost support further. On the demand side, the Chinese New Year holiday this week will see aluminum processing enterprises entering a concentrated holiday break, with seasonal impacts on demand being significant. On the inventory side, social inventories are expected to enter a continuous inventory buildup cycle during the holiday, with domestic aluminum ingot inventories likely to reach around 500,000 mt before the holiday. After the holiday, attention should focus on changes in aluminum ingot inventories during the holiday and the pace of downstream resumption post-holiday.

[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.]