Demand Is Expected to Recover; Aluminum Prices May Fluctuate and Strengthen [SMM Aluminum Morning Meeting Summary]

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2.20 SMM Aluminum Morning Meeting Summary

Futures Market: Yesterday, the SHFE aluminum 2504 contract opened at 20,790 yuan/mt, with a high of 20,800 yuan/mt and a low of 20,700 yuan/mt, closing at 20,720 yuan/mt, up 30 yuan/mt or 0.14% from the previous day. LME aluminum opened at $2,665/mt, with a high of $2,704/mt and a low of $2,655.5/mt, closing at $2,680.5/mt, up $12/mt or 0.45%.

Macro Front: (1) US Fed January meeting minutes: Several participants indicated that it might be appropriate to pause or slow balance sheet reduction until the debt ceiling issue is resolved; Bostic stated that the Fed has made good progress on balance sheet reduction. (Bullish ★) (2) The EU approved a new round of sanctions against Russia. (Bullish ★) (3) Five departments: Support consumption upgrades in automotive, electronic, and home products, promoting the transition to "new energy" vehicles, "smart" home appliances, and "renewed" kitchen and bathroom renovations. (Bullish ★★) 

Fundamentals Side: (1) According to SMM statistics, as of February 19, aluminum ingot inventory in Guangdong was 229,000 mt; in Wuxi, 323,000 mt; and in Gongyi, 133,200 mt, with a total increase of 6,000 mt compared to the previous trading day. (Bearish ★) (2) Regarding domestic aluminum billet inventory, Guangdong aluminum billet inventory was 153,100 mt, and Wuxi aluminum billet inventory was 68,200 mt, with a total decrease of 100 mt. (Bullish ★) (3) After the holiday, the petroleum coke market experienced a sharp price surge driven by tightened supply and robust demand. However, as prices rose rapidly, downstream enterprises showed reluctance to purchase at high prices, leading to a divergence in petroleum coke prices during the week. (Bearish ★)

Primary Aluminum Market: During yesterday's morning session, the SHFE aluminum front-month contract fluctuated at highs near 20,700 yuan/mt above the daily moving average. In the east China market, rising aluminum prices intensified downstream resistance to high prices, resulting in weak spot transactions. With subsequent inventory growth, the discount is expected to widen. SMM A00 aluminum ingot was at a discount of 60 yuan/mt to the SHFE aluminum 2503 contract, unchanged from the previous trading day. SMM A00 aluminum ingot recorded 20,600 yuan/mt, up 90 yuan/mt from the previous trading day. In the central China market, affected by absolute prices, end-user enterprises mainly adopted a wait-and-see approach, and shipments from processing enterprises showed no significant improvement. Raw material procurement was primarily demand-driven, and spot transactions in the central China market showed no notable improvement compared to the previous trading day. SMM central China A00 aluminum ingot was recorded at 20,470 yuan/mt, up 90 yuan/mt from the previous trading day, with actual market transactions ranging from parity to a premium of 10 yuan/mt over SMM central China prices.

Recycled Aluminum Raw Materials: The aluminum scrap market quotations remained generally stable, with slight increases in some categories. Baled UBC aluminum scrap prices were steady at 15,150-15,950 yuan/mt (excluding tax), while shredded aluminum tense scrap prices were stable at 16,650-18,150 yuan/mt (liquid aluminum, excluding tax). Currently, most traders have resumed operations, focusing on active shipments, leading to a gradual increase in aluminum scrap market circulation. However, due to limited recovery in end-use consumption, price increases lacked momentum, and the price difference between primary metal and scrap slightly widened. In the short term, the price difference between primary metal and scrap is expected to maintain a slight fluctuating trend.

Secondary Aluminum Alloy: Secondary aluminum 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, with immediate profit margins for imported ADC12 narrowing slightly to around 200 yuan/mt. Although aluminum prices rebounded yesterday, secondary aluminum market quotations remained stable, with limited upward momentum. Recently, with the completion of trader resumptions and increased overseas imports, aluminum scrap market circulation has improved, slightly easing cost pressure on secondary aluminum plants. Current downstream demand recovery has been slower than expected, and with increasing market supply, prices may face downward pressure. In the short term, secondary aluminum alloy prices are expected to adjust narrowly in line with aluminum prices.

Summary: Recently, the macro front and fundamentals side have shown a tug-of-war between longs and shorts. In the short term, aluminum prices are likely to maintain a fluctuating trend: on one hand, inventory pressure and cost easing limit upside room; on the other hand, macro policy expectations and hopes for consumption recovery provide bottom-line support. In Q2, with the arrival of the traditional consumption peak season and the release of policy dividends, aluminum prices are expected to strengthen driven by demand recovery. However, attention should be paid to systemic risks from unexpectedly rapid tightening of overseas liquidity. Fundamentals side, the pressure of resumed production in the aluminum supply side has re-emerged, with domestic aluminum operating capacity expected to rise slowly in February. Alumina average spot prices have continued to weaken, driving aluminum costs downward, further weakening cost-side support. As both supply and demand are increasing and post-holiday demand recovery has exceeded expectations, aluminum futures and spot prices can still remain strong despite the lack of cost support. Regarding inventory, current domestic aluminum ingot inventory buildup has slightly exceeded expectations, with inventory likely to surpass last year's level by the end of February. Q1 inventory peak may be revised upward to the range of 900,000-950,000 mt, making it difficult to support further short-term aluminum price increases. On the demand side, last week, the operating rate of leading domestic aluminum downstream processing enterprises maintained a recovery trend, up 4.1 percentage points WoW to 60.8%. After the Lantern Festival, aluminum processing enterprises accelerated resumption of production, and with the approach of the traditional peak season in March, operating rates in various 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 production by end-users, and limited supply-side increments, 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 cautious decisions and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.]