US Fed Month-End Interest Rate Cut Signals Strengthen, Consumption Underpins Aluminum Market [SMM Aluminum Morning Meeting Minutes]

SMM Aluminum Morning Meeting Minutes, 10.15

Futures:According to the night session data on October 14, the SHFE aluminum 2511 contract closed at 20,855 yuan/mt, down 0.36%. It was under pressure in the short term below the 5-day moving average (MA5: 20,934), but remained above the 10-day, 30-day, and 60-day moving averages, indicating a still bullish medium and long-term trend. The trading volume (31,647 lots) shrank below the average volume, reflecting low market activity. The MACD indicator showed a negative DIF and a positive DEA, with a slightly positive histogram, suggesting weak momentum. Referencing recent price highs and lows (e.g., high near 21,005, low near 19,200), the resistance zone is seen at 20,950-21,000 (near the previous high and MA5), while the support zone is at 20,680-20,800 (near the intraday low and MA60). Overall, the market fluctuated rangebound, and the direction of a breakout from the range needs to be watched.

Primary Aluminum Market:SHFE aluminum mainly fluctuated downward in the early session, with the price center falling to around 20,900 yuan/mt. In east China, although SHFE aluminum trended downward, prices increased compared to earlier periods, leading to more hedging trades. Downstream buying sentiment rebounded, sellers refused to budge on prices, and actual transactions were at parity to a premium of about 10 yuan/mt against the SMM average price. The east China market shipment sentiment index was 3.07 on Tuesday this week, up 0.13 WoW; the purchase sentiment index was 2.97, up 0.21 WoW. SMM A00 aluminum was quoted at 20,900 yuan/mt on Tuesday this week, up 100 yuan/mt from the previous trading day, at parity against the 2510 contract and at a discount of 40 yuan/mt against the 2511 contract, up 10 yuan/mt from the previous trading day. In central China, purchasing was relatively active before the market opened, with some enterprises adopting a wait-and-see stance. After opening, aluminum prices rose rapidly, downstream purchasing sentiment declined, shipments increased significantly, and daily actual transactions were concentrated at a discount of about 20 yuan/mt against the SMM central China aluminum price. The central China market shipment sentiment index was 2.72 on Tuesday this week, flat WoW; the purchase sentiment index was 2.57, down 0.04 WoW. SMM central China A00 aluminum was recorded at 20,840 yuan/mt, up 80 yuan/mt from the previous trading day, at a discount of 60 yuan/mt against the October contract and a discount of 100 yuan/mt against the November contract, down 10 yuan/mt from the previous trading day. The price spread between Henan and Shanghai narrowed by 20 yuan/mt WoW to -60 yuan/mt.

Recycled Aluminum Raw Materials:Spot aluminum prices increased on Tuesday this week compared to the previous trading day, with SMM A00 spot aluminum closing at 20,900 yuan/mt. Aluminum scrap prices generally followed the upward trend. With the traditional peak season more than half over, tight supply remains the main theme in the aluminum scrap market, and procurement prices remain high, though the sustainability of these high levels needs to be considered. On Tuesday this week, baled UBC was mainly quoted in the range of 15,850-16,350 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was mainly quoted in the range of 17,300-17,800 yuan/mt (ex-tax). Baled UBC rose 50 yuan/mt WoW, while shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hub, and mechanical casting aluminum scrap remained flat WoW. Since former President Trump threatened to impose 100% tariffs on China last Friday, SHFE aluminum broke below key support levels during the night session. On October 11, suppliers and scrap utilization enterprises followed the futures decline, lowering aluminum scrap quotes by up to 200 yuan/mt. After the market opened on Monday the 13th, some regions such as Hubei, Anhui, and Hunan adjusted prices downward. On Tuesday the 14th, aluminum prices increased by 100 yuan/mt, and the cumulative rise in aluminum scrap prices was fully recovered, leading to the decision to keep prices unchanged. Mixed views emerged regarding the subsequent trend of aluminum scrap prices. Some participants in the secondary industry believe that after the National Day holiday, aluminum scrap prices will maintain a strong fluctuating trend, as the tight supply fundamentals are unlikely to ease in the short term, providing solid support for prices. In October, aluminum scrap prices are expected to be guided higher by primary aluminum prices. However, other feedback suggests that while downstream demand remains stable with a positive outlook, scrap utilization enterprises still have limited acceptance for high-priced raw materials and maintain a tendency to drive down prices, which may restrain further price increases. According to SMM's comprehensive assessment, the overall aluminum scrap market in October is expected to hold up well, with the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) projected to hover around 17,500-18,000 yuan/mt. The market should closely monitor the sustainability of post-holiday downstream demand and further guidance from primary aluminum price trends.

Secondary Aluminum Alloy: Futures side, on Tuesday, the most-traded cast aluminum alloy futures contract 2512 fell before rising, opening at 20,475 yuan/mt, hitting a high of 20,550 yuan/mt during the session, bottoming at 20,360 yuan/mt, and finally closing at 20,380 yuan/mt. It recorded three consecutive bearish candlesticks, down 30 yuan/mt or 0.15% from the previous trading day. Open interest stood at 13,234 lots, with a trading volume of 4,174 lots, and the session was dominated by bearish position increases. In the spot market, on Tuesday, the SMM A00 aluminum price increased by 100 yuan/mt from the previous trading day to 20,900 yuan/mt, while the SMM ADC12 price held steady at 21,000 yuan/mt. Aluminum prices reclaimed some losses on Tuesday, and the secondary aluminum market adopted a wait-and-see approach with limited price adjustment sentiment. Currently, raw material availability has not improved significantly, and enterprises continue to face cost pressure. At the same time, stable and improving demand provides support for prices; however, inventory pressure exerts some suppression on prices. It is expected that ADC12 prices will maintain a fluctuating trend in the short term. Going forward, close attention should be paid to raw material supply conditions, changes in social inventory, and the pace of post-holiday demand recovery.

Aluminum Market Summary: Macro front, Fed Chairman Powell hinted that officials may stop shrinking the balance sheet in the coming months, acknowledging "some signs" of tightening in money markets. Even if a government shutdown severely impairs the Fed's grasp of the economic situation, there is still expectation for another 25-basis-point interest rate cut later this month. Bullish★ Domestically, Premier Li Qiang chaired a symposium with economic experts and entrepreneurs to discuss the economic situation. The Premier emphasized the need to strengthen and enhance the effectiveness of counter-cyclical adjustments, persistently boost domestic demand, and strengthen the domestic circulation. Multiple measures should be taken to create a first-class industrial ecosystem and comprehensively address disorderly and irrational competition in industries. (Neutral★) Fundamentals: After entering October, some aluminum enterprises in northern China reported that, driven by peak season demand for downstream processed products, the proportion of liquid aluminum directly supplied is expected to increase. This will directly keep aluminum ingot production at low levels, reducing the supply of spot aluminum ingots in the market and providing support to aluminum prices from the supply side. Inventory side, according to SMM data, as of October 13, domestic social inventory of aluminum ingots was approximately 650,000 mt: up 58,000 mt MoM from September 29, and up 33,000 mt from September 25. From a seasonal perspective, there has been no excessive seasonal inventory buildup this year, with inventories remaining at low levels for the same period. Downstream consumption shows resilient peak season performance, with spot discounts limited. Against the backdrop of seasonal peak demand, even as aluminum prices rose to a high of 21,000 yuan/mt, spot market discounts did not deepen significantly (the spot-futures price spread did not widen noticeably), further confirming demand's supportive effect on prices. Comprehensive Outlook: Short-term, on the macro front, expectations for US Fed interest rate cuts are positive for metal prices, while domestic policies emphasize counter-cyclical adjustments and domestic demand expansion, stimulating consumption in the domestic market. Fundamentals provide underlying support: the increased proportion of liquid aluminum direct supply in northern aluminum enterprises keeps ingot production low, leading to tight supply; inventories are at low levels for the period without excessive seasonal buildup, and downstream peak season demand resilience is evident, with limited spot discounts, confirming consumption's cushioning effect on prices. Currently, aluminum prices remain at a relatively high level. High prices will gradually suppress the procurement pace of downstream buyers, and 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 aluminum market is expected to hover at highs.

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