Aluminum Market Supply and Demand Both Increase, Short-Term High-Level Fluctuations Continue [SMM Aluminum Morning Meeting Summary]

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2.17 SMM Aluminum Morning Meeting Notes

Futures Market: Last Friday, the SHFE aluminum 2504 contract opened at 20,845 yuan/mt, reached a high of 20,880 yuan/mt, a low of 20,770 yuan/mt, and closed at 20,725 yuan/mt, up 70 yuan/mt or 0.34% from the previous day. LME aluminum opened at $2,606/mt, peaked at $2,649.5/mt, bottomed at $2,606/mt, and settled at $2,635/mt, up $31.5/mt or 1.21%.

Macro: (1) Last Friday, the US January "scary data" unexpectedly plunged, with January retail sales MoM at -0.9%, marking the largest decline since January 2024. (Bullish★★) (2) Brazilian President Lula: Brazil will take reciprocal measures to counter US steel and aluminum tariffs. (Bullish★) (3) China's January social financing scale increased by 7.06 trillion yuan, 583.3 billion yuan more than the same period last year; new RMB loans in January reached 5.13 trillion yuan, exceeding expectations; M2 money supply grew 7% YoY in January. (Bullish★)

Fundamentals: (1) On February 14, aluminum ingot inventories in Guangdong, Wuxi, and Gongyi were 211,900 mt, 291,200 mt, and 114,000 mt, respectively, with total inventories up 5,400 mt from the previous trading day. (Bearish★) (2) According to SMM statistics, aluminum billet inventories in major domestic consumption areas totaled 300,400 mt, including 142,300 mt in Guangdong and 64,900 mt in Wuxi, up 5,900 mt from Monday. (Bearish★) (3) Last week, the operating rate of leading domestic downstream aluminum processing enterprises significantly rebounded, 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: Last Friday morning, the SHFE aluminum front-month contract fluctuated, with its price center moving upward. Market transactions slightly increased as downstream procurement picked up ahead of the weekend, with most trades concentrated among traders. Specifically, trading in east China remained robust, and spot discounts were stable. Last Friday, SMM A00 aluminum was at a discount of 40 yuan/mt against the SHFE aluminum 2502 contract, down 10 yuan/mt from the previous trading day. SMM A00 aluminum ingot was recorded at 20,600 yuan/mt, up 90 yuan/mt from the previous trading day. In central China, downstream stocking improved market transactions near the weekend, narrowing spot discounts. Actual transactions were mainly at SMM Central +10 yuan/mt. Last Friday, the price spread between Henan and Shanghai was around a discount of 120 yuan/mt. SMM Central A00 aluminum against the SHFE aluminum 2502 contract was recorded at 20,480 yuan/mt, up 110 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials: Last Friday, aluminum scrap market quotations rose significantly following aluminum prices. Baled UBC aluminum scrap was quoted at 15,150-15,900 yuan/mt (tax excluded), and shredded aluminum tense scrap was quoted at 16,650-18,150 yuan/mt (liquid aluminum, tax excluded). In the short term, the aluminum scrap market fundamentals are steadily recovering, with downstream purchasing as needed and improved market transactions. The short-term price difference between primary metal and scrap is expected to fluctuate.

Secondary Aluminum Alloy: Last Friday, secondary aluminum alloy prices remained stable. Domestically, SMM ADC12 prices were steady at 21,200-21,400 yuan/mt. In the import market, overseas ADC12 prices ranged from $2,420-2,460/mt. Due to a slight appreciation in the RMB exchange rate, immediate profits from imported ADC12 expanded slightly. Last week, the secondary aluminum market continued its recovery phase. High primary aluminum prices pushed up aluminum scrap procurement costs, supporting secondary aluminum alloy prices. However, the pace of downstream demand recovery still requires observation. If aluminum prices remain high, combined with limited import supply and seasonal demand recovery, the price center of ADC12 is expected to move further upward.

Summary: Recently, macro factors have been mixed. Domestically, efforts to boost consumption continue, while overseas trade barriers are intensifying. However, domestic enterprises and market sentiment have shown limited response to these developments. In the short term, the global aluminum market may undergo structural adjustments influenced by policies. Continuous attention is needed on changes in European and American trade policies 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. Alumina average spot prices have continued to weaken, driving aluminum costs downward and further weakening cost-side support. Despite both supply and demand increasing, post-holiday demand recovery has exceeded expectations. Even with reduced cost support, aluminum futures and spot prices remain strong. Inventory-wise, the post-holiday inventory buildup continues, with inventories expected to increase rapidly this week. Demand side, the operating rate of leading domestic downstream aluminum processing enterprises significantly rebounded 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 end-user production, coupled with limited supply growth, aluminum prices are 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 prudent decisions and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.]