Trade Barriers Continue to Escalate, Aluminum Prices Remain Volatile at High Levels [SMM Aluminum Morning Meeting Summary]

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2.19 SMM Aluminum Morning Briefing

Futures Market: Yesterday, the SHFE aluminum 2504 contract opened at 20,735 yuan/mt, reached a high of 20,750 yuan/mt, a low of 20,630 yuan/mt, and closed at 20,735 yuan/mt, up 100 yuan/mt or 0.48% from the previous day. LME aluminum opened at $2,645/mt, hit a high of $2,674.5/mt, a low of $2,627/mt, and closed at $2,671/mt, up $26/mt or 0.98%.

Macro: (1) Trump: Auto tariffs will be around 25%, and large enterprises related to chips and automobiles will return to the US. (Bullish★★) (2) The European Commission will swiftly utilize trade protection measures, such as anti-dumping and countervailing duties, when necessary. (Bullish★) (3) The National Development and Reform Commission (NDRC): Supports private enterprises in actively participating in the "Two Major and Two New" initiatives, intensifies efforts to resolve overdue payments to private enterprises, and expedites the revision and release of the new negative list for market access. (Bullish★★) 

Fundamentals: (1) According to SMM statistics, as of February 18, aluminum ingot inventories stood at 226,200 mt in Guangdong, 321,000 mt in Wuxi, and 132,000 mt in Gongyi, with a total increase of 9,100 mt compared to the previous trading day. (Bearish★) (2) Regarding domestic aluminum billet inventories, Guangdong aluminum billet inventory was 153,300 mt, and Wuxi aluminum billet inventory was 68,100 mt, with a total increase of 8,000 mt. (Bearish★)

Primary Aluminum Market: During yesterday's morning session, the SHFE aluminum front-month contract hovered around 20,600 yuan/mt below the daily moving average. In the east China market, inventory pressure remained high, and downstream buying was mainly need-based, leading to a slight expansion in discounts. SMM A00 aluminum ingot was quoted at a discount of 60 yuan/mt to the SHFE aluminum 2503 contract, down 10 yuan/mt from the previous trading day. The SMM A00 aluminum ingot price was recorded at 20,510 yuan/mt, down 30 yuan/mt from the previous trading day. In the central China market, snowfall in Qinghai reignited concerns about supply, but actual downstream transactions showed no significant improvement. Due to absolute price levels, end-user enterprises mostly adopted a wait-and-see approach, and shipments from processing enterprises showed little progress. During the day, trading activity was relatively active among traders due to concerns, with SMM central China A00 aluminum quoted at 20,380 yuan/mt, down 30 yuan/mt from the previous trading day, and actual market transactions ranged from parity to a premium of 10 yuan/mt over SMM central China prices.

Recycled Aluminum Raw Materials: Aluminum scrap prices remained basically stable. Yesterday, baled UBC aluminum scrap was quoted at 15,150-15,950 yuan/mt (excluding tax), and shredded aluminum tense scrap was quoted at 16,650-18,150 yuan/mt (liquid aluminum, excluding tax). Due to weaker aluminum prices and relatively firm aluminum scrap prices, the price difference between primary metal and scrap narrowed slightly during the week. In the short term, with traders resuming operations and downstream procurement demand steadily recovering, market transactions continued to improve. The price difference between primary metal and scrap is expected to fluctuate slightly in the short term.

Secondary Aluminum Alloy: Prices of secondary aluminum remained stable. Domestically, the SMM ADC12 price was steady at 21,200-21,400 yuan/mt. In the import market, overseas ADC12 prices were in the range of $2,420-2,460/mt, with immediate import profits for ADC12 at 100-300 yuan/mt per ton. Aluminum prices continued to decline slightly today, while secondary aluminum market quotations remained stable. Recently, with traders resuming operations and an increase in overseas imports, the circulation of aluminum scrap in the market has increased, slightly easing cost pressures for secondary aluminum plants. Current downstream demand recovery is slower than expected, and with increasing market supply, prices may face downward pressure. In the short term, secondary aluminum alloy prices are expected to fluctuate narrowly in line with aluminum prices.

Summary: Recently, macro-level bullish news has been frequent, with overseas measures on tariffs and anti-dumping duties emerging one after another. Coupled with domestic policy efforts to promote investment in emerging industries, the market remains optimistic about the medium and long-term outlook for aluminum consumption. However, in the short term, the global aluminum market will undergo structural adjustments due to policy impacts. Risks such as escalating overseas trade conflicts and prolonged domestic demand weakness dragging down aluminum consumption should be monitored. Fundamentals side, the pressure of resumed production in the aluminum supply chain has re-emerged, with domestic operating capacity of aluminum expected to rise slowly in February. The average spot price of alumina continues to weaken, driving aluminum costs further downward, and cost-side support continues to weaken. As both supply and demand are increasing, and post-holiday demand recovery has exceeded expectations, aluminum futures and spot prices remain strong despite the lack of cost support. On the inventory side, current domestic aluminum ingot inventory buildup slightly exceeded expectations, and inventory is highly likely to surpass last year's level by the end of February. The Q1 inventory peak may be revised upward to the range of 900,000-950,000 mt, making it difficult to provide support for further short-term aluminum price increases. On the demand side, last week, the operating rate of leading domestic downstream aluminum processing enterprises continued to recover, up 4.1 percentage points WoW to 60.8%. After the Lantern Festival, aluminum processing enterprises accelerated resumption of work and production. Coupled with the approaching traditional peak season in March, operating rates across sectors still have upside room. However, attention should be paid to the recovery of end-use consumption and changes in the export market. In the future, with increasing PV demand and comprehensive resumption of work and production by end-users, and limited supply-side increments, aluminum prices are expected to maintain high-level fluctuations in the short term.

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