Fundamental Weakness Makes It Difficult to Sustain Upward Momentum in Aluminum Prices; Short-Term Price Correction Observed [SMM Aluminum Morning Meeting Summary]

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2.25 SMM Aluminum Morning Meeting Summary Futures Market: Overnight, the most-traded SHFE aluminum 2504 contract opened at 20,670 yuan/mt, hit a high of 20,730 yuan/mt, a low of 20,590 yuan/mt, and closed at 20,600 yuan/mt, down 135 yuan/mt or 0.65%. Yesterday, LME aluminum opened at $2,677/mt, reached a high of $2,679/mt, a low of $2,641/mt, and closed at $2,652.5/mt, down $23/mt or 0.86%. Macro: (1) Russian President Vladimir Putin stated that Russia does not oppose Ukraine retaining its statehood, but its territory should not be used as a hostile base against Russia. He also revealed that Russia and the US could agree on a 50% reduction in armaments. Putin further mentioned that companies from both countries have started discussing cooperative projects, and Russia plans to resume aluminum product exports to the US, with an export volume of 2 million mt, which would help stabilize the product's price. (Bearish ★) (2) On the afternoon of February 24, Chinese President Xi Jinping had a phone call with Russian President Vladimir Putin upon request. Xi emphasized that the development strategies and foreign policies of China and Russia are long-term. Regardless of international changes, China-Russia relations will steadily progress, aiding each other's development and revitalization while injecting stability and positive energy into international relations. (Neutral ★) Fundamentals: (1) SMM reported on February 24 that aluminum ingot outflows from warehouses totaled 119,100 mt in the past week, an increase of 7,600 mt WoW. Aluminum billet outflows from warehouses totaled 51,500 mt in the past week, an increase of 7,300 mt WoW. (Bullish ★) (2) SMM reported on February 24 that in the third week after the holiday, aluminum ingot and billet inventories increased by 69,000 mt, up 6.1% WoW. (Bearish ★) (3) On February 24, LME aluminum inventory stood at 535,900 mt, down 4,000 mt or 0.74% from the previous day. Over the past week, LME aluminum inventory decreased by 20,100 mt or 3.61%. Over the past month, LME aluminum inventory dropped by 59,300 mt or 9.96%. (Bullish ★) Primary Aluminum Market: On Monday morning, the front-month SHFE aluminum contract fluctuated downward, with a significant decline. Downstream bearish sentiment and wait-and-see attitudes resurfaced, with moderate purchasing activity. Transactions and shipments were concentrated among traders, with relatively active trading. Specifically, trading in east China was moderate, and spot discounts remained stable. On Monday, SMM A00 aluminum spot was at a discount of 70 yuan/mt against the SHFE aluminum 2503 contract, unchanged from the previous trading day. SMM A00 aluminum ingot was recorded at 20,590 yuan/mt, down 230 yuan/mt from the previous trading day. In central China, downstream demand was weak, and the market focused on shipments, with spot discounts widening. Actual transactions in the market were mainly at a discount of 10 yuan/mt against SMM central China prices. On Monday, the Henan-Shanghai price spread was around a discount of 220 yuan/mt. SMM central China A00 aluminum spot was recorded at 20,440 yuan/mt, down 240 yuan/mt from the previous trading day. Secondary Aluminum Raw Materials: On Monday, primary aluminum spot prices dropped significantly by 230 yuan/mt from the previous trading day, with SMM A00 spot closing at 20,590 yuan/mt. Aluminum scrap market prices followed the aluminum price pullback. On Monday, baled UBC aluminum scrap was quoted at 15,050-15,850 yuan/mt (tax excluded), and shredded aluminum tense scrap was quoted at 16,450-18,050 yuan/mt (liquid aluminum, tax excluded). In the short term, with upstream and downstream resuming production, procurement volumes slightly increased compared to before. However, SMM learned that alloy plants' operating rates remain moderate, and bargain down purchasing prices persist. Aluminum scrap prices are expected to fluctuate within a limited range in the short term. Secondary Aluminum Alloy: On Monday, aluminum prices ended their consecutive gains, with SMM A00 aluminum prices dropping by 230 yuan/mt from the previous trading day to 20,590 yuan/mt. Some secondary aluminum prices followed the decline. Domestically, SMM ADC12 prices fell by 100 yuan/mt to 21,200-21,400 yuan/mt. In the import market, overseas ADC12 prices remained stable at $2,480-2,500/mt. With domestic prices declining, the immediate profit margin for importing ADC12 narrowed to near the break-even point. On Monday, aluminum prices shifted downward, and secondary aluminum market quotations remained mixed. Some companies retracted last Friday's gains and adjusted prices downward by 100 yuan/mt in line with the market, while others maintained firm quotations supported by costs. In the short term, ADC12 prices are expected to continue fluctuating rangebound. Upside room is constrained by supply growth pressure and the slow pace of demand recovery, while downside is supported by aluminum scrap costs. Attention should be paid to recent raw material circulation and the recovery of end-use consumption. Summary: Macro side, market surveys indicate that signs of a slowdown in US economic growth have become more evident. According to S&P Global, US business activity expansion in February slowed to its lowest level since September 2023, reflecting cautious corporate sentiment toward the economic outlook. Fundamentals side, cost support continues to weaken; supply side remains stable with slight increases, with overall changes being relatively small; demand side, driven by rising aluminum prices, end-user enterprises adopted a wait-and-see approach, and downstream aluminum semis enterprises saw limited shipments. Factory raw material inventory turnover days struggled to recover, focusing on just-in-time inventory replenishment and consuming finished product inventories. On the inventory side, SMM domestic aluminum ingot and billet social inventory climbed to 1.194 million mt, surpassing the key thresholds of 1 million mt and 1.1 million mt, and is now approaching the 1.2 million mt mark. Most suppliers are 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 inventory is expected to remain low in the long term, and spot market sentiment of holding back cargoes is strengthening. Under the strong expectations but weak reality scenario, aluminum prices are experiencing significant fluctuations driven by macro sentiment trading expectations. However, weak fundamentals are unlikely to provide sustained upward momentum for aluminum prices, and short-term price corrections are expected. 【The information provided is for reference only. This article does not constitute direct investment research advice. Clients should make decisions cautiously and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM.】