Powell Reiterates No Need for Rate Adjustments, SHFE Aluminum Pulls Back [SMM Aluminum Morning Meeting Summary]

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February 12 SMM Aluminum Morning Briefing

Futures Market: The most-traded SHFE aluminum 2503 contract opened at 20,610 yuan/mt overnight, hitting a high of 20,690 yuan/mt and a low of 20,580 yuan/mt, before closing at 20,635 yuan/mt, down 40 yuan/mt or 0.19% from the previous session. Yesterday, LME aluminum opened at $2,658.5/mt, reached a high of $2,668/mt and a low of $2,631.5/mt, and closed at $2,638.5/mt, down $22.5/mt or 0.85%.

Macro Front: (1) Fed Chairman Powell stated that the neutral interest rate has risen and that the Fed will attempt to halt balance sheet reduction based on market conditions, reiterating that there is no urgency to adjust interest rates. (Bearish★★) (2) Following Trump's confirmation of steel and aluminum tariffs, EU trade ministers will hold a video conference on Wednesday evening. European Commission President Ursula von der Leyen announced firm and proportionate countermeasures against US tariffs. In response to US sanctions, Iran warned of closing key oil shipping routes. (Bullish★) (3) On February 11, the Shanghai municipal government held a meeting with foreign financial institutions to gather opinions and suggestions, aiming to further optimize the business environment and promote high-level financial sector opening. (Bullish★) 

Fundamentals Side: (1) According to SMM statistics, as of February 11, aluminum ingot inventories stood at 199,300 mt in Guangdong, 285,800 mt in Wuxi, and 116,000 mt in Gongyi, with total inventories across the three regions increasing by 20,100 mt compared to the previous trading day. (Bearish★★) (2) Regarding domestic aluminum billet inventories, Guangdong recorded 136,400 mt, and Wuxi recorded 64,500 mt, with a total decrease of 100 mt. (Bullish★) (3) According to external sources on February 10, industry executives and government officials stated that US tariff policies might lead to a decline in India's aluminum exports to the US, prompting producers to shift focus to other markets such as Europe. The US is India's largest aluminum export market. (Neutral)

Primary Aluminum Market: During yesterday's morning session, the SHFE front-month aluminum contract fluctuated, pulling back slightly from the night session, but the price center moved upward. Overall market transactions were moderate. Specifically, trading activity in east China continued to recover. Despite the upward shift in the futures market center, market transactions did not weaken, and downstream buyers expressed bullish sentiment, supporting spot premiums. Yesterday, SMM A00 aluminum was at a discount of 40 yuan/mt against the SHFE 2502 contract, unchanged from the previous trading day. SMM A00 aluminum ingot prices recorded 20,590 yuan/mt, up 180 yuan/mt from the previous trading day. In the central China market, overall trading activity still needs to recover. Some traders showed intentions to stand firm on quotes, with actual transactions mainly at SMM Central China -20 yuan/mt. The Henan-Shanghai price spread was around a discount of 150 yuan/mt. SMM Central China A00 aluminum against the SHFE 2502 contract recorded 20,440 yuan/mt, up 160 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials: Yesterday, baled UBC aluminum scrap was quoted at 15,150-15,900 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 16,650-17,950 yuan/mt (liquid aluminum, excluding tax). In the short term, the aluminum scrap market fundamentals remain weak on both supply and demand sides. Most aluminum scrap traders are still resuming operations slowly, while downstream scrap-consuming enterprises are primarily digesting inventories and have not resumed normal procurement. Overall market transactions were weak, and the short-term price difference between primary metal and scrap is expected to maintain a fluctuating trend.

Secondary Aluminum Alloy: Domestically, SMM ADC12 prices rose by 100 yuan/mt from the previous day to 21,200-21,400 yuan/mt. In the import market, overseas ADC12 prices remained stable at $2,420-2,450/mt, with spot import ADC12 still in a slightly profitable state. This week, the secondary aluminum market continued its recovery phase, with market transactions gradually becoming active and producers resuming raw material procurement. Raw material prices followed aluminum price increases, further driving ADC12 prices upward. Overall, ADC12 prices are expected to fluctuate upward in the short term.

Summary: On the macro front, intensified EU sanctions and US tariff pressures are expected to cause structural adjustments in the global aluminum market in the short term. Continued attention is needed on trade policy developments in Europe and the US, as well as demand changes in major consumer markets. Yesterday, the Shanghai municipal government held a meeting with foreign financial institutions to promote high-level financial sector opening, providing some confidence to the financial market. On the fundamentals side, the pressure of resumed production in the aluminum supply chain has re-emerged, with domestic operating capacity expected to rise slowly in February. Alumina average spot prices continued to weaken, driving aluminum costs further downward. As of now, aluminum production costs have fallen below 17,300 yuan/mt, with industry profits exceeding 3,300 yuan/mt. Regarding inventory, post-holiday inventory buildup continues, with inventories expected to increase rapidly this week. On the demand side, operating rates of leading aluminum processing enterprises rose by 5.7 percentage points WoW to 56.8%. Although it is currently the off-season, operating rates of aluminum plate/sheet, strip and foil, secondary alloy, and extrusion enterprises have all increased, especially for automotive extrusion enterprises, which are accelerating their resumption of production, providing support for demand. Additionally, due to financial constraints and limited orders on hand before the holiday, stockpiling was relatively low, and there may be some stockpiling sentiment after the holiday. As the Chinese New Year holiday ends, aluminum processing enterprises are gradually resuming operations, and the consumer market is expected to recover. In the near term, focus on the impact of tariff events, post-holiday aluminum ingot inventory changes, and the pace of downstream resumption of production. SHFE aluminum is expected to fluctuate at highs in the short term.

[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.]