Expectations for US Fed Interest Rate Cuts Heat Up, Aluminum Prices Expected to Hover at Highs in Short Term [SMM Aluminum Morning Meeting Minutes]

October 9 SMM Aluminum Morning Meeting Minutes

Futures: On the night session before the holiday (September 30), the most-traded SHFE aluminum 2511 contract opened at 20,765 yuan/mt, with the highest price at 20,770 yuan/mt, the lowest price at 20,680 yuan/mt, and closed at 20,680 yuan/mt, down 0.43% from the previous close. The trading volume was 68,700 lots, and the open interest was 191,000 lots. On October 8, LME aluminum opened at $2,743/mt, reached a high of $2,762/mt, a low of $2,737.5/mt, and closed at $2,750.5/mt.

Primary Aluminum Market: SHFE aluminum traded weakly in the morning session, with the price center falling from around 20,750 yuan/mt to near 20,700 yuan/mt. In east China, the holiday atmosphere was strong, trading was sluggish, and sentiment among both buyers and sellers weakened. Actual transactions were at a discount of 10 yuan/mt to parity against the SMM average price. On September 30, the east China market selling sentiment index was 2.97, down 0.29 MoM; the purchasing sentiment index was 2.77, down 0.28 MoM. On September 30, SMM A00 aluminum was quoted at 20,790 yuan/mt, up 30 yuan/mt from the previous trading day, at a discount of 20 yuan/mt against the 2510 contract, down 10 yuan/mt from the previous trading day. In the central China market, purchases by downstream enterprises were largely suspended, and sellers struggled to find counterparties, resulting in large discounts. Market sentiment dropped significantly, with actual transactions during the day concentrated at a discount of 30-20 yuan/mt against the SMM central China aluminum price. On September 30, the central China market selling sentiment index was 2.93, down 0.94 MoM; the purchasing sentiment index was 2.63, down 1.14 MoM. SMM central China A00 aluminum was recorded at 20,750 yuan/mt, flat from the previous trading day, at a premium of 10 yuan/mt against the October contract, down 40 yuan/mt from the previous trading day. The price spread between Henan and Shanghai decreased by 30 yuan/mt MoM to 30 yuan/mt.

Recycled Aluminum Raw Materials: On September 30, the spot price of primary aluminum rose slightly compared to the previous trading day, with SMM A00 spot aluminum closing at 20,720 yuan/mt, while aluminum scrap market prices generally increased. With the National Day holiday approaching, enterprises in parts of Henan, Jiangxi, and Shandong reported that they had started stockpiling production raw materials in advance for the holiday. Amid the shortage of aluminum scrap, overall market prices remained high. On September 30, baled UBC was quoted at 15,600-16,200 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was quoted at 17,300-17,800 yuan/mt (ex-tax). Baled UBC increased by 50 yuan/mt MoM, while shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, and mechanical casting aluminum scrap increased by 100 yuan/mt MoM. On the day before the National Day holiday, Jiangxi, Henan, and other regions accelerated their aluminum scrap stockpiling pace, simultaneously raising aluminum scrap purchase prices by 100-200 yuan/mt. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai increased by 30 yuan/mt from the previous trading day to 1,982 yuan/mt, while the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan rose by 40 yuan/mt from the previous trading day to 2,020 yuan/mt. Post-holiday, aluminum scrap prices are expected to hover at highs. On one hand, the tight supply fundamentals of aluminum scrap are difficult to alleviate in the short term, and the supporting effect of pre-holiday downstream stocking demand on prices continues to develop. On the other hand, there has been no further feedback on the implementation of domestic tax cleanup policies, but from a longer-term perspective, downstream scrap utilization enterprises still maintain a mentality to drive down prices. Overall, the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) is expected to fluctuate around 17,300-17,800 yuan/mt, while baled UBC prices are anticipated to hover near 15,600-16,100 yuan/mt. The market needs to closely monitor the sustainability of downstream stocking demand before the holiday, the actual implementation pace of tax policies, and further guidance from primary aluminum price trends.

Secondary aluminum alloy: On the futures market, on September 30, the most-traded cast aluminum alloy futures contract 2512 opened at 20,280 yuan/mt, reached a high of 20,370 yuan/mt, a low of 20,205 yuan/mt, and finally settled at 20,210 yuan/mt, down 60 yuan/mt or 0.30% from the previous close. Open interest was 11,876 lots, with a trading volume of 1,760 lots; intraday activity was primarily characterized by short position reduction. In the spot market, on September 30, the SMM A00 aluminum price increased by 30 yuan/mt from the previous trading day to 20,720 yuan/mt, while the SMM ADC12 price remained stable at 20,900 yuan/mt. On the last trading day before the holiday, downstream enterprises had basically completed stockpiling, inquiries in the secondary aluminum market decreased, and overall trading was sluggish. Holiday arrangements for secondary aluminum enterprises this year are generally similar to last year; enterprises providing direct aluminum liquid supply continue normal production modes or adopt shift rotations and moderate production load reductions. Some enterprises plan holidays of about 3 days, with variations of 1-3 days longer or shorter compared to last year. ADC12 prices are expected to continue fluctuating rangebound after the holiday, with close attention needed on raw material supply conditions and the pace of demand recovery.

Aluminum market summary: Macro perspective, internationally, according to CME predictions, the probability of the US Fed keeping interest rates unchanged in October is 5.4%, while the probability of a 25-basis-point rate cut is 94.6%; for December, the probability of unchanged rates is 0.6%, cumulative probability of a 25-basis-point cut is 16.0%, and cumulative probability of a 50-basis-point cut is 83.4%. (Bullish ★) Domestically, on October 9, the People's Bank of China will conduct 1,100 billion yuan in outright reverse repo operations via fixed quantity, interest rate tender, and multiple-price winning bids, with a maturity of 3 months. (Bullish ★) From a fundamental perspective, according to SMM data, domestic aluminum ingot social inventory on October 9 was approximately 649,000 mt, up 57,000 mt from September 29 and increasing 32,000 mt from September 25. On the macro front, divisions within the US Fed over the future monetary policy path have heightened uncertainty in the market going forward; domestically, the central bank conducted 110 billion yuan in 3-month reverse repo operations today. Fundamentals side, spot aluminum, pre-holiday atmosphere was strong in east China, trading was sluggish, and sentiment among both buyers and sellers weakened, with actual transactions at a discount of 10 yuan/mt to parity relative to the SMM average price. On September 30, the east China market selling sentiment index was 2.97, down 0.29 MoM; the purchasing sentiment index was 2.77, down 0.28 MoM. Inventory side, on October 9, domestic social inventory of aluminum ingot stood at about 649,000 mt, up 57,000 mt from September 29. Combined with slower-than-expected destocking in September, aluminum premiums are expected to face some pressure in the initial post-holiday period. Entering October, some enterprises in northern China reported that the proportion of liquid aluminum is expected to increase, while casting ingot volume is likely to remain low, providing support for aluminum prices. Overall, given the favorable macro environment and steady fundamentals in the short term, the aluminum market is expected to mainly hover at highs in the near term. Going forward, attention should remain on post-holiday domestic consumption and macro sentiment changes both at home and abroad.

[The information provided is for reference only. This article does not constitute direct investment research or advice. Clients should make decisions cautiously and not use this to replace their independent judgment. Any decisions made by clients are unrelated to SMM.]