Macro and Fundamentals Present Mixed Signals, SHFE Aluminum Maintains Fluctuating Trend [SMM Aluminum Morning Meeting Minutes]

November 5 SMM Aluminum Morning Conference Minutes

Futures: On the night session of November 4, the most-traded SHFE aluminum contract opened higher but came under pressure and pulled back, then moved into consolidation, generally holding steady at high levels. The 2512 contract opened at 21,395 yuan/mt, hit a high of 21,440 yuan/mt and a low of 21,335 yuan/mt, and closed at 21,405 yuan/mt, down 0.28% from the previous close. From a technical perspective, the MA moving average system showed a bullish alignment (MA5: 21,403 > MA10: 21,320 > MA20: 21,140.25 > MA60: 20,845.83), and the MACD 4-hour candlestick maintained a golden cross (DIFF: 125.94, DEA: 115.85). In terms of trend, although prices at the night session pulled back from the intraday high, they ultimately closed at 21,405 yuan/mt, above most short-term moving averages, indicating that the current upward trend has not been technically broken, but short-term pullback risks still need attention.

Macro Front: The central bank announced that to maintain ample liquidity in the banking system, it conducted 700 billion yuan in outright reverse repo operations on November 5, with a maturity of 3 months (91 days). (Bullish ★) The US Senate again failed to pass a temporary funding bill for the federal government on the 4th, setting a record for the federal government shutdown. (Neutral) Federal Reserve Governor Milan once again publicly called for more aggressive interest rate cuts. Fed Governor Cook stated that inflation remains high and faces upside risks, and a rate cut in December is possible but will depend on subsequent incoming information. (Neutral)

Fundamentals: Inventory side, according to SMM statistics, the combined aluminum ingot inventory in three domestic regions stood at 475,500 mt on November 4, up 2,500 mt from the previous period; the combined aluminum billet inventory in two regions was 100,000 mt, with a slight inventory buildup of 500 mt from the previous period. With the growth of in-transit inventory and environmental protection-driven production restrictions suppressing demand, inventory is expected to build up again.

Primary Aluminum Market: Yesterday, the SHFE aluminum early session trading center shifted lower. Before 9:45, SHFE aluminum fluctuated with changes, generally trading above 21,500 yuan/mt; around 9:45, futures prices pulled back to around 21,410–21,450 yuan/mt. In East China, with absolute prices remaining high, downstream purchasing was weak, but the high prices at the open stimulated holders to actively sell, increasing market circulating supply. The discount for actual transactions widened, mainly around a discount of 20–10 yuan/mt to the SMM average price; after futures prices fell, selling enthusiasm did not fade, and actual transactions failed to turn into a premium, while downstream purchasing enthusiasm did not show a significant rebound. This Tuesday, the selling sentiment index in the East China market was 2.9, down 0.12 WoW; the purchasing sentiment index was 2.88, down 0.13 WoW. On Tuesday, SMM A00 aluminum closed at 21,440 yuan/mt, flat from the previous trading day, at a discount of about 10 yuan/mt against the 2511 contract, down 10 yuan/mt from the previous trading day. In central China, before the market opened on Tuesday, prices were mainly at parity with the central China benchmark, but high aluminum prices led to sluggish trading, with sellers mainly adopting a wait-and-see approach. After the market opened, buying sentiment saw a slight rebound, as traders engaged in hedging and stockpiling, but downstream market transactions remained weak, with enterprises reducing raw material stockpiling and purchasing mainly for rigid demand. Buyers preferred to purchase at large discounts, but transactions were limited, and the actual transaction prices were mainly at a discount of 10 yuan/mt to the central China benchmark. On Tuesday, the selling sentiment index in the central China market was 2.9, up 0.01 MoM, while the purchasing sentiment index was 2.8, down 0.01 MoM. SMM central China aluminum closed at 21,290 yuan/mt, down 10 yuan/mt from the previous trading day, at a discount of 160 yuan/mt against the November contract, down 20 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -150 yuan/mt, down 10 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials:On Tuesday, spot primary aluminum prices rose compared to the previous trading day, with SMM A00 aluminum closing at 21,440 yuan/mt. Aluminum scrap prices followed the upward trend of aluminum prices. As the traditional peak season ended, downstream demand showed significant divergence. Demand for aluminum scrap used in cast aluminum alloys remained stable, providing more consumption support, while demand for aluminum scrap used in wrought aluminum alloys began to show signs of weakening. However, tight market supply remained the main theme, keeping procurement prices high, though the sustainability of these high levels remains to be seen. On Tuesday, baled UBC was quoted in the range of 16,100–16,750 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was quoted in the range of 17,900–18,250 yuan/mt (ex-tax). Prices for baled UBC, shredded aluminum tense scrap (priced based on aluminum content), scrap wheel hubs, and mechanical casting aluminum scrap held steady MoM. On Tuesday, spot aluminum prices remained stable, and aluminum scrap prices in major producing regions were largely unchanged. In terms of the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai was recorded at 2,702 yuan/mt, while the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan widened to 2,326 yuan/mt, up 10 yuan/mt from the previous trading day. The aluminum scrap market is expected to hold up well this week, with the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) potentially shifting upward to 18,000–18,500 yuan/mt. If primary aluminum prices continue to rise, it will further transmit positive effects, coupled with the restocking demand of secondary aluminum enterprises amid low inventories, making it difficult to change the short-term tight supply pattern. Demand side, the end of the traditional peak season and environmental protection-driven production restrictions suppressing demand for wrought aluminum alloy scrap may exacerbate market divergence. Close attention should be paid to the procurement pace of raw materials by secondary aluminum enterprises as they enter the off-season and the sustainability of end-user orders. If primary aluminum prices retreat after a rapid rise, the aluminum scrap market will face downward pressure, especially for wrought aluminum alloy scrap varieties, which are at greater risk due to environmental protection-driven production restrictions. Overall, the market is expected to continue the tug-of-war between sellers and buyers, and it is advisable to closely monitor the movement of primary aluminum prices and policy developments.

Secondary Aluminum Alloy:On Tuesday, aluminum prices ended their consecutive gains, with SMM A00 aluminum spot prices holding steady at 21,440 yuan/mt. In the secondary aluminum market, ADC12 prices remained stable at 21,400 yuan/mt. Due to fear of high prices, downstream buyers showed limited willingness to rush to buy amid continuous price rise, leading to weaker market transactions and a slight accumulation of finished product inventories at some enterprises. Raw material supply remained tight, keeping procurement costs for secondary aluminum plants elevated. Coupled with support from the supply side, ADC12 prices may hold up well in the short term.

Aluminum Market Summary:On the macro front, the central bank conducted outright reverse repo operations to support the economy, while the US federal government shutdown is set to break records, leading the US Fed to adopt a more cautious stance with higher thresholds for subsequent interest rate cuts amid a lack of data. Supply side, domestic operating aluminum capacity saw limited changes. Overseas, aluminum smelters cut production by 210,000 mt, with further cuts expected in March 2026, reigniting concerns over tight supply. In the medium term, attention will be on the ramp-up of aluminum projects in Indonesia. Demand side, as aluminum prices fluctuate at highs and severe smog in central China has prompted the rollout of environmental protection-driven production restriction policies, demand has been somewhat suppressed. Additionally, high LME aluminum prices have closed the processing trade window, weakening demand for aluminum semis exports. Monitoring the destocking cycle of finished products at downstream processors amid high aluminum prices is key. Overall, with aluminum prices at elevated levels, downstream processing enterprises are prioritizing destocking of finished product inventories, leading to weaker demand for raw materials. However, aluminum ingot inventories remain relatively low, limiting fundamental drivers for aluminum prices in the short term, while macro sentiment both domestically and overseas remains relatively optimistic.

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