Macro Long and Short Factors Intertwined, Aluminum Prices to Maintain High-Level Fluctuations in the Short Term [SMM Aluminum Morning Meeting Summary]

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2.14 SMM Aluminum Morning Meeting Notes

Futures Market: Overnight, the SHFE aluminum 2503 contract opened at 20,505 yuan/mt, with a high of 20,550 yuan/mt and a low of 20,470 yuan/mt, closing at 20,540 yuan/mt, down 20 yuan/mt or 0.10% from the previous day. Yesterday, LME aluminum opened at $2,624/mt, with a high of $2,634.5/mt and a low of $2,583.5/mt, closing at $2,608/mt, down $18.5/mt or 0.70%.

Macro: (1) Trump signed a reciprocal tariff memorandum, stating that goods routed through other countries to avoid tariffs would not be accepted. Countries with VAT systems may be targeted for tariffs. Many countries' tariffs are expected to remain unchanged, with no exemptions anticipated. Short-term prices may rise. US officials indicated that related policy research would be completed by April 1, with the possibility of global unified tariffs not ruled out. Tariffs will consider factors such as exchange rates, taxes, tariffs, non-tariff barriers, and any "unfair restrictions" of other countries. The US announced that the tariff implementation date would be delayed until at least April, raising hopes of avoiding a global trade war. (Bullish ★) (2) US January PPI exceeded expectations, but sub-indices suggest core PCE may fall short of expectations. The market still expects the US Fed to hold rates steady before September, but bets on a July rate cut are increasing. (Bullish ★) (3) The central bank's Q4 monetary policy implementation report stated that policy adjustments and optimization would be made based on domestic and international economic and financial conditions and financial market operations. Promoting reasonable price increases is an important consideration for monetary policy. (Bullish ★) 

Fundamentals: (1) According to SMM statistics, as of February 13, 2025, domestic aluminum ingot social inventory stood at 763,000 mt, with circulating aluminum inventory at 637,000 mt, up 34,000 mt from Monday, 75,000 mt from the first post-holiday day (February 5), an increase of 11.5%, and 237,000 mt from pre-holiday levels (January 27). (Bearish ★★) (2) As of February 13, 2025, domestic aluminum billet social inventory was 300,400 mt, up 25,500 mt from the first post-holiday day (February 5), an increase of 9.3%, and 76,900 mt from pre-holiday levels (January 27). (Bearish ★) (3) This week, the operating rate of leading domestic downstream aluminum processing enterprises rebounded significantly, up 5.7 percentage points WoW to 56.8%, mainly driven by post-Chinese New Year resumption of production, though recovery varied across sectors. (Bullish ★★)

Primary Aluminum Market: Yesterday morning, the SHFE aluminum front-month contract fluctuated within a narrow range, with moderate market activity. Some traders reported increased downstream purchases after resumption of work. Specifically, trading in east China continued to improve, with spot discounts remaining stable. SMM A00 aluminum was at a discount of 30 yuan/mt against the SHFE aluminum 2502 contract, unchanged from the previous trading day. SMM A00 aluminum ingot was recorded at 20,510 yuan/mt, down 30 yuan/mt from the previous trading day. In central China, market activity was still recovering, with spot discounts narrowing. Actual transactions in the market were mostly on par with SMM central China prices. The price spread between Henan and Shanghai was around a discount of 170 yuan/mt. SMM central China A00 aluminum was recorded at 20,370 yuan/mt, down 20 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials: Suppliers gradually resumed operations, with market activity improving WoW. Today, baled UBC aluminum scrap was quoted at 15,150-15,900 yuan/mt (excluding VAT), and shredded aluminum tense scrap was quoted at 16,650-17,950 yuan/mt (liquid aluminum, excluding VAT). In the short term, the aluminum scrap market remains in an off-season atmosphere. Scrap aluminum traders are gradually resuming operations, with downstream purchasing as needed, leading to improved market transactions. The short-term price difference between primary metal and scrap is expected to fluctuate.

Secondary Aluminum Alloy: Domestically, SMM ADC12 prices remained stable at 21,200-21,400 yuan/mt. In the import market, overseas ADC12 prices were in the range of $2,420-2,460/mt. Due to a slight appreciation of the yuan, immediate profits from imported ADC12 expanded slightly. This week, the secondary aluminum market continued its recovery, with operating rates at secondary aluminum plants gradually returning to normal levels. The accelerated pace of resumption of work upstream and downstream boosted market activity, with raw material procurement by manufacturers also picking up. Supported by costs, recovering demand, and limited imported supply, ADC12 prices are expected to fluctuate upward in the short term.

Summary: Recently, macro factors have been mixed. Domestically, efforts to boost consumption continue, while overseas trade barriers are increasing. However, domestic enterprises and market sentiment have shown limited response to these developments. In the short term, the global aluminum market is expected to undergo structural adjustments influenced by policies. Continued attention is needed on changes in trade policies in Europe and the US and demand in major consumer markets. 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. The average spot price of alumina continues to weaken, driving aluminum costs lower, with cost-side support further weakening. Although both supply and demand are increasing, post-holiday demand recovery has exceeded expectations. Despite the lack of cost support, aluminum futures and spot prices remain strong. Inventory-wise, the market is still in a post-holiday inventory buildup phase, with inventories expected to continue rising rapidly this week. Demand side, the operating rate of leading domestic downstream aluminum processing enterprises rebounded significantly this week, up 5.7 percentage points WoW to 56.8%, mainly driven by post-Chinese New Year resumption of production, though recovery varied across sectors. In the future, with increasing PV demand and full resumption of work and production by end-users, and given limited supply-side growth, aluminum prices are expected to fluctuate at high levels 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.]