Tug-of-War Between Longs and Shorts in the Aluminum Market Intensifies, Is Expected to Support Bottom Resilience [SMM Aluminum Morning Meeting Summary]

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2.21 SMM Aluminum Morning Briefing

Futures: Yesterday, the SHFE aluminum 2504 contract opened at 20,865 yuan/mt, peaked at 20,895 yuan/mt, hit a low of 20,820 yuan/mt, and closed at 20,860 yuan/mt, up 70 yuan/mt or 0.34% from the previous day. LME aluminum opened at $2,687/mt, reached a high of $2,730/mt, a low of $2,686.5/mt, and closed at $2,730/mt, up $43/mt or 1.6%.

Macro: (1) US Fed's Bostic: Still expects two interest rate cuts this year, but there is significant uncertainty; Goolsbee: PCE data is unlikely to be as alarming as CPI data. If tariffs lead to higher inflation, the Fed will take it into account. (Bullish ★) (2) US Treasury Secretary Besant: The Fed's September rate cut was too large; no plans to reassess gold reserves in the sovereign wealth fund; sanctions on Russia will be lifted if necessary. (Bullish ★) (3) People's Bank of China: Implementing a moderately loose monetary policy, detailing 25 measures to support private economy financing. Expanding private enterprise bond financing, strengthening risk-sharing for private enterprise bonds, and supporting the issuance of sci-tech bonds, green bonds, and asset-backed securities by private enterprises. (Bullish ★★)

Fundamentals: (1) According to SMM statistics, as of February 20, domestic mainstream consumption area aluminum ingot inventory stood at 845,000 mt, up 27,000 mt WoW. (Bearish ★) (2) Domestic mainstream consumption area aluminum billet inventory reached 315,300 mt, up 8,300 mt WoW, with the inventory turning point yet to form. (Bearish ★) (3) On February 20, SMM statistics showed Shanghai Bonded Zone aluminum inventory at 62,500 mt and Guangdong Bonded Zone inventory at 12,700 mt, totaling 75,200 mt, up 4,700 mt WoW. (Bearish ★)

Primary Aluminum Market: Yesterday morning, SHFE aluminum front-month contract fluctuated at highs near 20,750 yuan/mt above the daily average. In east China, the aluminum market rebounded to highs, with market sentiment dominated by a wait-and-see approach and sluggish transactions. However, some suppliers remained optimistic about the market outlook, controlling shipment pace with a clear sentiment to stand firm on quotes. SMM A00 aluminum ingot was quoted at 20,690 yuan/mt, up 90 yuan/mt from the previous trading day, with SMM A00 aluminum ingot discount to SHFE aluminum 2503 contract at 60 yuan/mt, unchanged from the previous day. In central China, traders were optimistic about the market outlook with a clear sentiment to stand firm on quotes. However, as trucked goods arrived in bulk, squeezing station resources, transactions at premiums in central China remained challenging. Downstream processing enterprises, affected by the aluminum price rebound, mainly picked up goods under long-term contracts at monthly average prices, with sluggish spot order transactions. SMM central China A00 aluminum ingot was quoted at 20,560 yuan/mt, up 90 yuan/mt from the previous trading day, with the Henan-Shanghai price spread at 130 yuan/mt, and actual market transactions near parity with SMM central China prices.

Secondary Aluminum Raw Materials: Aluminum scrap market quotations were generally stable with slight increases. Baled UBC aluminum scrap prices rose by 0-100 yuan/mt to 15,150-15,950 yuan/mt (excluding tax), while shredded aluminum tense scrap prices remained stable at 16,550-17,400 yuan/mt (excluding tax). Currently, traders have mostly resumed work, actively shipping goods, leading to increased aluminum scrap market circulation. However, due to limited end-use consumption recovery, price increases lacked momentum, with the price difference between primary metal and scrap slightly widening. In the short term, the price difference between primary metal and scrap is expected to fluctuate slightly.

Secondary Aluminum Alloy: Secondary aluminum prices remained mostly stable. Domestically, SMM ADC12 prices held steady at 21,200-21,400 yuan/mt. In the import market, overseas ADC12 prices rose to $2,440-2,480/mt, with immediate profit margins for imported ADC12 narrowing to within 100 yuan/mt. Although aluminum prices continued to rise yesterday, overall quotations in the secondary aluminum market remained stable, with limited upward momentum. Recently, with traders resuming work and increased overseas imports, aluminum scrap market circulation has improved, slightly easing cost pressure for secondary aluminum plants. Current downstream demand recovery has been slower than expected, and with increasing market supply, prices are under pressure, leading to more low-priced resources in the market. In the short term, secondary aluminum alloy prices are expected to undergo narrow adjustments.

Summary: Recently, the aluminum market has been influenced by mixed bullish and bearish factors, presenting a "strong expectations, weak reality" pattern. On one hand, the current inventory buildup cycle has not ended, coupled with raw material price fluctuations weakening cost support, jointly limiting upward price space. On the other hand, macroeconomic easing expectations continue to ferment, combined with seasonal domestic consumption recovery expectations, gradually strengthening market bottom support. In the short term, aluminum prices may continue to fluctuate, but caution is needed against the spillover effects of global risk asset volatility triggered by unexpected shifts in US and European monetary policy. 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 further downward, with cost-side support continuing to weaken. As both supply and demand show growth, and post-holiday demand recovery exceeds expectations, aluminum futures and spot prices remain strong despite the lack of cost support. Inventory-wise, current domestic aluminum ingot inventory buildup slightly exceeded expectations, with inventory likely to surpass last year's level by the end of February. Q1 inventory peak may be revised up to the 900,000-950,000 mt range, providing limited support for further short-term aluminum price increases. Demand side, last week, operating rates of leading domestic aluminum downstream processing enterprises continued to recover, up 4.1 percentage points WoW to 60.8%. This week, operating rates of leading domestic aluminum downstream processing enterprises continued to rise, but the growth rate slowed compared to the previous two weeks, up 0.8 percentage points WoW to 61.6%. Overall, downstream consumption remains in the recovery phase. In the short term, attention should be paid to the pace of peak season order fulfillment and the impact of aluminum prices on end-user purchase willingness. In the future, with increasing PV demand and full resumption of work and 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 prudent decisions and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.]