The U.S. Imposes 10% Tariff; LME Aluminum Maintains Sideways Movement During Chinese New Year [SMM Aluminum Morning Meeting Summary]

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2.5 SMM Aluminum Morning Meeting Notes

Futures Market: SHFE aluminum was closed overnight due to the Chinese New Year holiday. On Tuesday, LME aluminum opened at $2,622/mt, reached a high of $2,644.5/mt, a low of $2,611/mt, and closed at $2,629/mt, up $8.5/mt or 0.32%.

Macro: (1) On February 1, US President Donald Trump signed an executive order to raise a 10% tariff on goods imported from China. (Bearish★★) (2) Due to factors such as the approaching Chinese New Year holiday and the mass return of employees to their hometowns, the manufacturing PMI in January was 49.1%, down 1.0 percentage point from the previous month. (Bearish★) (3) On January 29, the US Fed concluded its two-day monetary policy meeting and announced that the federal funds rate target range would remain at 4.25%-4.5%. This marked the first pause in the Fed's rate-cutting cycle since it began in September last year, aligning with widespread expectations. (Neutral) (4) US job vacancies hit their lowest level since September last year. The US factory orders MoM in December recorded the largest decline since June 2024. (Bearish★)

Fundamentals: (1) According to SMM statistics, as of January 27, aluminum ingot inventory in major domestic consumption areas stood at 492,000 mt, up 32,000 mt from the previous week. Aluminum billet inventory in major domestic consumption areas was 222,800 mt, up 22,800 mt from the previous Thursday. (Bearish★) (2) SMM data showed that the average tax-inclusive full cost of the Chinese aluminum industry in January 2025 was 19,989 yuan/mt, down 5.3% MoM, mainly due to a sharp pullback in spot alumina prices during the period. In February, the monthly average spot alumina price is expected to decline significantly, further driving down aluminum costs. (Bearish★) (3) According to the SMM survey, the aluminum processing industry PMI in January recorded 40.4%, mainly due to the impact of the Chinese New Year holiday. In February, as the holiday ends, aluminum processing enterprises are expected to gradually resume production, with the PMI likely to rebound above the 50 mark. (Bullish★)

Primary Aluminum Market: On the last trading day before the holiday, January 27, the SHFE aluminum front-month contract fluctuated downward to around 20,170 yuan/mt in early trading. The east China market was almost entirely immersed in the holiday atmosphere, with sluggish market activity and trading sentiment hitting rock bottom, making transactions difficult. SMM A00 aluminum was quoted at a discount of 20 yuan/mt to the SHFE 2502 contract, flat from the previous trading day. SMM A00 aluminum ingot was recorded at 20,120 yuan/mt, down 70 yuan/mt from the previous trading day. In terms of inventory, weekly inventory in major aluminum consumption areas monitored by SMM was 492,000 mt, with an inventory buildup of 32,000 mt. The turning point for social inventory buildup has arrived, but the total inventory remains relatively low. Attention should be paid to inventory changes during the Chinese New Year holiday, which may fall short of market expectations, limiting the expansion of seasonal spot market discounts.

Secondary Aluminum Raw Materials: Last Monday, most aluminum scrap suppliers entered holiday mode, and aluminum scrap prices stabilized. 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: Last Monday, secondary aluminum plants largely stopped taking orders and shut down for the holiday. With downstream enterprises also halting production, market transactions were scarce, and ADC12 prices remained stable.

Summary: On the macro side, the US tariff hike policy has been implemented, with Trump signing an executive order on February 1 to impose a 10% tariff on goods from China. China has filed a complaint with the WTO dispute settlement mechanism and will take corresponding countermeasures. The US Fed paused rate cuts in January, maintaining the federal funds rate target range at 4.25%-4.50%, in line with market expectations. Fundamentals side, supply disruptions have decreased, and domestic aluminum operating capacity is expected to remain stable in February. Spot alumina average prices are expected to decline significantly in February, likely driving aluminum costs further downward, weakening cost-side support. On the demand side, the market is currently in the off-season. However, as the Chinese New Year holiday ends, aluminum processing enterprises will gradually resume production, and consumption is expected to recover. In the short term, aluminum prices are likely to fluctuate downward. Key focus areas include developments in the tariff issue, aluminum ingot inventory changes during the holiday, and the pace of downstream resumption after the holiday.

[The information provided is for reference only. This article does not constitute direct investment research advice. Clients should make prudent decisions and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.]