Aluminum Prices Under Strong Expectations but Weak Reality Are More Likely to Rise Than Fall, Driven by Macro Sentiment and Trading Expectations [SMM Aluminum Morning Meeting Summary]

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February 24 SMM Aluminum Morning Meeting Summary

Futures Market: The most-traded SHFE aluminum 2504 contract opened at 20,760 yuan/mt overnight, hitting a high of 20,875 yuan/mt and a low of 20,760 yuan/mt, before closing at 20,830 yuan/mt, down 45 yuan/mt or 0.22%. On Friday, LME aluminum opened at $2,726/mt, reached a high of $2,736/mt and a low of $2,672/mt, and closed at $2,675.5/mt, down $54.5/mt or 2%.  

Macro: (1) On February 21 (EST), the White House released a memorandum on the "America First" investment policy, announcing adjustments to US investment policies with a focus on further restricting bilateral investments with China. In response, a spokesperson for China's Ministry of Commerce urged the US to adhere to international investment and trade rules, respect market economy principles, and stop politicizing and weaponizing economic and trade issues. (Bearish ★); (2) Due to concerns over Trump-era policies, the final February data from the University of Michigan's US Consumer Inflation Survey showed that long-term inflation expectations for the next 5-10 years were revised up to 3.5%, the highest level since April 1995. (Bearish ★)

Fundamentals: (1) As of February 21, SMM's daily cost-profit model estimated the full cost of alumina production at 3,244 yuan/mt, down 152 yuan/mt from the beginning of the year (3,396 yuan/mt), mainly due to a 158 yuan/mt drop in bauxite costs, reducing the share of bauxite in alumina costs by 2 percentage points. (Bearish ★); (2) Last week, the operating rate of leading domestic aluminum downstream processing enterprises continued to rise, though the growth slowed compared to the previous two weeks, up 0.8 percentage points WoW to 61.6%. (Bullish ★); (3) Last week, the domestic aluminum rod market remained weak. Post-holiday production resumed normally, with supply slightly increasing. However, limited by delivery cycles, demand remained sluggish, driven mainly by rigid demand, and processing fees showed little improvement. (Bullish ★)

Primary Aluminum Market: On Friday morning, the SHFE aluminum front-month contract fluctuated at highs near 20,900 yuan/mt above the daily moving average, with the center continuing to rise. In east China, aluminum prices rebounded to high levels, with market sentiment dominated by a wait-and-see approach, resulting in sluggish transactions and an expanded discount. However, some suppliers remained optimistic about future prices, and no significant price collapse was observed in the spot market. SMM A00 aluminum was at a discount of 70 yuan/mt against the SHFE aluminum 2503 contract, down 10 yuan/mt from the previous trading day. SMM A00 aluminum ingot was recorded at 20,820 yuan/mt, up 130 yuan/mt from the previous trading day. In central China, with the concentrated arrival of trucked cargoes, inventory pressure in the market increased, making it difficult to achieve premiums in the region. Downstream aluminum semis enterprises, affected by the aluminum price rebound, mainly picked up goods under long-term contracts at monthly average prices, with spot transactions remaining sluggish and rigid demand transactions conducted at discounts of 10-20 yuan/mt against central China prices. SMM central China A00 aluminum was recorded at 20,680 yuan/mt, up 120 yuan/mt from the previous trading day, with the Henan-Shanghai price spread at 140 yuan/mt, up 10 yuan/mt from the previous trading day. Actual market transactions were conducted at parity to discounts of 20 yuan/mt against SMM central China prices.

Secondary Aluminum Raw Materials: On Friday, aluminum prices continued to rise, with SMM A00 spot aluminum closing at 20,820 yuan/mt, up 130 yuan/mt from the previous trading day. Aluminum scrap market quotations continued to increase steadily, with baled UBC aluminum scrap prices rising by 0-100 yuan/mt to 15,250-15,950 yuan/mt (excluding tax), and shredded aluminum tense scrap prices mostly stable at 16,550-17,400 yuan/mt (excluding tax). Currently, most traders have resumed operations and are actively shipping, leading to increased circulation in the aluminum scrap market. However, due to limited recovery in end-use consumption, price increases appeared constrained, 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: On Friday, aluminum prices extended their three-day rally, with SMM A00 aluminum prices rising another 130 yuan/mt from the previous trading day to 20,820 yuan/mt, and some secondary aluminum prices followed suit. Domestically, SMM ADC12 prices increased by 100 yuan/mt to 21,300-21,500 yuan/mt. In the import market, overseas ADC12 prices continued to rise to the range of $2,480-2,500/mt. However, due to the appreciation of the yuan, the immediate profit per ton for imported ADC12 remained within 100 yuan. Although aluminum prices accelerated their upward trend today, secondary aluminum market quotations showed some divergence. Some enterprises, constrained by cost pressures, actively raised prices by 100 yuan/mt, while others reported limited price increases due to growing supply-side pressure. In the short term, secondary aluminum alloy prices are expected to adjust narrowly in line with aluminum prices.  

Summary: On the macro side, potential new trade agreements between China and the US have drawn continued market attention. Fundamentals side, cost-side support continues to weaken; supply side shows slight growth with relatively small overall changes; demand side, affected by rising aluminum prices, end-user enterprises have adopted a wait-and-see approach, with shipments from downstream aluminum semis enterprises showing little improvement. Factory raw material inventory turnover days have struggled to recover, with rigid demand restocking and consumption of finished product inventories being the main focus. On the inventory side, SMM's weekly inventory in major aluminum consumption regions recorded 845,000 mt, an inventory buildup of 27,000 mt. While absolute inventory levels continue to rise, the growth rate has slowed. Most suppliers remain optimistic about aluminum prices in the future, and it is expected that after entering March, the inventory turning point will gradually emerge. With policy support, aluminum ingot inventories are expected to remain low in the long term, and holding back cargoes sentiment in the spot market is likely to strengthen. Under the scenario of strong expectations but weak reality, aluminum prices are more likely to rise than fall, driven by macro sentiment and trading expectations.

 【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 unrelated to SMM.】