Macro Sentiment Unstable, Consumption Realization Requires Observation, Market Cautious, Aluminum Prices Fluctuate and Adjust [SMM Aluminum Morning Meeting Summary]

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SMM Aluminum Morning Briefing on February 26

Futures Market: Overnight, the most-traded SHFE aluminum 2504 contract opened at 20,550 yuan/mt, hitting a high of 20,680 yuan/mt and a low of 20,540 yuan/mt, before closing at 20,575 yuan/mt, up 30 yuan/mt or 0.15%. Yesterday, LME aluminum opened at $2,650/mt, reached a high of $2,669/mt and a low of $2,627/mt, and closed at $2,639/mt, down $13.5/mt or 0.51%. 

Macro: (1) Due to uncertainties surrounding Trump's policies, the US consumer confidence index in February recorded its largest decline in nearly four years. The 10-year US Treasury yield subsequently fell to its lowest level of the year (bearish★); (2) The head of a new oversight committee in the US House of Representatives plans to conduct a comprehensive review of how the US Fed makes interest rate decisions, evaluating whether controlling inflation should take precedence over ensuring employment (neutral★); (3) US President Trump stated that an agreement on mineral issues with Ukraine has essentially been reached. Earlier, two sources reported that the US and Ukraine had agreed on the terms of a mineral agreement (bearish★).

Fundamentals: (1) According to SMM statistics, as of February 25, aluminum ingot inventories stood at 249,400 mt in Guangdong, 330,000 mt in Wuxi, and 148,000 mt in Gongyi, with total inventories across the three regions increasing by 6,400 mt compared to the previous trading day (bearish★); (2) As of February 25, domestic aluminum billet inventories were recorded at 157,500 mt in Guangdong and 72,700 mt in Wuxi, with total inventories decreasing by 3,500 mt (bullish★); (3) On February 25, LME aluminum inventories were recorded at 531,000 mt, down 4,875 mt or 0.91% from the previous day. Over the past week, LME aluminum inventories decreased by 20,900 mt or 3.79%, and over the past month, they fell by 64,200 mt or 10.78% (bullish★). 

Primary Aluminum Market: On Tuesday morning, the center of the SHFE aluminum front-month contract quickly dipped, prompting downstream purchases at lower prices, with strong buying sentiment in the market. Specifically, trading activity was active in east China, and spot discounts narrowed by 20 yuan/mt compared to the previous trading day. On Tuesday, SMM A00 aluminum was at a discount of 50 yuan/mt against the SHFE aluminum 2503 contract, with SMM A00 aluminum ingot prices recorded at 20,390 yuan/mt, down 200 yuan/mt from the previous trading day. In central China, the consumption of truck-delivered cargoes significantly reduced the pressure on station-delivered cargoes. After the absolute price drop on Tuesday, downstream stocking slightly improved, and traders stood firm on quotes. Station-delivered cargoes were mostly offered at premiums, and trading activity improved compared to the previous trading day. Spot discounts narrowed, with actual transactions in the market mainly at SMM Central China +10 yuan/mt. On Tuesday, the price spread between Henan and Shanghai was around a discount of 180 yuan/mt. SMM Central China A00 aluminum was recorded at 20,260 yuan/mt, down 180 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials: On Tuesday, primary aluminum spot prices dropped significantly by 200 yuan/mt compared to the previous trading day, with SMM A00 spot aluminum closing at 20,390 yuan/mt. Aluminum scrap market quotes followed the aluminum price pullback but with a smaller decline. On Tuesday, baled UBC aluminum scrap was quoted at 14,850-15,750 yuan/mt (tax excluded), and shredded aluminum tense scrap was quoted at 16,350-17,950 yuan/mt (liquid aluminum, tax excluded). In the short term, with the resumption of production upstream and downstream in the aluminum scrap market and the downward trend in absolute scrap prices, market purchasing sentiment remained moderate. Some downstream players were consuming inventories due to high alloy ingot prices. It is expected that the price difference between primary metal and scrap will slightly narrow in the short term.

Secondary Aluminum Alloy: On Tuesday, aluminum prices continued the previous day's downward trend, with SMM A00 aluminum prices dropping another 200 yuan/mt to 20,390 yuan/mt. Secondary aluminum prices generally declined. Domestically, SMM ADC12 prices fell by 100 yuan/mt to 21,100-21,300 yuan/mt. In the import market, overseas ADC12 prices remained stable at $2,480-2,500/mt. With domestic prices declining further, the immediate profit and loss for ADC12 imports turned into a slight loss, closing the import window. On Tuesday, aluminum prices continued to weaken, and the secondary aluminum market generally followed with a 100 yuan/mt decline. Currently, manufacturers' operating rates have returned to normal, but downstream demand remains weak, with overall transactions being moderate. In the short term, ADC12 prices are expected to fluctuate rangebound, with upside room constrained by supply growth pressure and the slow pace of demand recovery, while downside risks are supported by aluminum scrap costs. Attention should be paid to recent raw material circulation and the recovery of end-use consumption.

Summary: Macro-wise, US President Trump introduced the latest measures that could reshape the global supply chain, directing the US Department of Commerce to study imposing tariffs on imported copper. Fundamentals side, cost-side 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 are adopting a wait-and-see approach, and shipments from downstream aluminum semis enterprises show little improvement. Factory raw material inventory turnover days are struggling to recover, with stockpiling mainly based on rigid demand and consumption of finished product inventories. Domestic aluminum ingot and aluminum billet social inventories have climbed to 1.194 million mt, surpassing the key thresholds of 1 million mt and 1.1 million mt, and are now approaching the 1.2 million mt mark. Currently, most suppliers are optimistic about the aluminum market outlook, 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 the spot market sentiment of holding back cargoes is strengthening. With unstable macro sentiment and consumption realization still needing observation, the market remains cautious about aluminum price fluctuations and adjustments.

 【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.】