Expectations for US Fed Interest Rate Cuts Heat Up Coupled with Solid Fundamentals, Aluminum Prices Fluctuate at Highs [SMM Aluminum Weekly Review]

The macro perspective is dominated by expectations of interest rate cuts. According to CME data, the current expectations for the US Fed's interest rate policy show a clear easing bias:

• October meeting: the probability of maintaining the current rate is only 5.4%, while the probability of a 25-basis-point cut is as high as 94.6%;
• December meeting: the probability of maintaining the rate drops to 0.6%. Regarding the cumulative rate cuts by the December meeting, the probability of a cumulative 25-basis-point cut is 16.0% (including two scenarios: "no cut in October + a 25-basis-point cut in December" and "a 25-basis-point cut in October + no cut in December"), and the probability of a cumulative 50-basis-point cut reaches 83.4% (i.e., a 25-basis-point cut in both October and December).

It should be noted that there remains some divergence within the US Fed regarding the extent of rate cuts. The US federal government has faced a shutdown due to Congress's failure to pass the fiscal budget bill. This event suggests that the US economy has entered a phase of marginal slowdown — the government shutdown may affect the release of economic data such as consumption and employment, while also reflecting constraints on fiscal policy support, further strengthening market expectations that the US Fed will cut rates to stimulate the economy. A looser monetary environment is favorable for stronger base metal prices.

Fundamentals: Tight Supply-Demand Balance Persists, Cost and Inventory Provide Strong Support

Supply side: The proportion of direct liquid aluminum supply increases, casting ingot volume remains low. After entering October, some aluminum enterprises in northern regions reported that, driven by peak season demand for downstream processed products, the proportion of direct liquid aluminum supply is expected to increase , which will directly keep aluminum ingot production at low levels, reduce spot aluminum ingot supply in the market, and provide support from the supply side for aluminum prices.

Cost side: Overall stable, providing a floor for prices. As of now, aluminum production costs have risen slightly by 22 yuan/mt compared to pre-holiday (before the National Day holiday), reaching 16,270 yuan/mt, with limited cost fluctuations.

Inventory side: Inventory buildup is controllable, not exceeding seasonal patterns. According to SMM data, domestic aluminum ingot social inventory on October 9 was approximately 649,000 mt:

1. • on a MoM basis, it increased by 57,000 mt from September 29 and by 32,000 mt from September 25;
   • from a seasonal perspective, this year has not seen an above-seasonal inventory buildup , with inventory at low levels for the same period.

2. Demand side: Peak season resilience is evident, spot discounts are limited. Against the backdrop of seasonal peak demand, even with aluminum prices rising to a high of 21,000 yuan/mt, the extent of spot market discounts is not deep (the spot-futures price spread has not widened significantly), further confirming demand's supportive effect on prices.

Overall Outlook: In the short term, the favorable macro perspective from interest rate cuts and the tight supply-demand balance in fundamentals are resonating, and the aluminum market is expected to hover at highs. However, it should be noted that current aluminum prices are already at a relatively high level (around 21,000 yuan/mt), and the inhibitory effect of high prices on downstream procurement pace will gradually emerge—some small and medium-sized processing enterprises may reduce purchases or delay orders due to cost pressure, leading to marginal weakening on the demand side and thus limiting further upside for aluminum prices. The most-traded SHFE aluminum contract is expected to trade between 20,700-21,200 yuan/mt next week, while LME aluminum is expected to trade between $2,720-2,800/mt.

The model forecasts that the price range for the most-traded aluminum contract's closing price from this Friday to next Thursday (2025-10-16) will be [20,480, 21,290], with a price center of 20,900 yuan/mt. The extreme price range is [20,090, 21,690], the normal price range is [20,350, 21,420], and the conservative price range is [20,610, 21,160]. Next week's price trend is expected to hold up well. The support range is [20,350, 20,610], and the resistance range is [21,160, 21,420].