Macro Tailwinds and Solid Fundamentals Provide Strong Support for Aluminum Prices [SMM Aluminum Morning Meeting Minutes]

SMM Morning Meeting Minutes, 11.28

Futures:On the night session of November 27, the SHFE aluminum 2601 contract opened at 21,450 yuan/mt, hit a high of 21,485 yuan/mt, touched a low of 21,400 yuan/mt, and finally closed at 21,480 yuan/mt, down 0.09%. Prices at night session failed to break through the 20-day and 10-day moving averages, with the 5-day moving average serving as a key short-term support level, while the 20-day moving average (21,595 yuan/mt) acted as a major resistance level. In terms of open interest, the night session open interest was approximately 257,000 lots, showing minor fluctuations compared to the daytime session, with no significant increase or decrease observed. LME aluminum opened at $2,856/mt, reached a high of $2,867.5/mt, fell to a low of $2,822/mt, and finally closed at $2,831.5/mt, down 1.13%. Trading volume was 15,800 lots, down 15,600 lots, while open interest stood at 700,000 lots, up 8,971 lots.

Macro Front:Morgan Stanley strategists noted that as the US economy slows down, the US Fed may further cut interest rates, which would support the continued rally in emerging markets. (Bullish ★) The French Presidential Palace, the Élysée, announced on the 26th local time that President Macron will pay a state visit to China in early December. (Neutral) Beijing plans to build and operate a centralized large-scale data center system with a power capacity exceeding 1 gigawatt (GW) in a 700-800 km dawn-dusk orbit, aiming to deploy large-scale AI computing power in space. (Bullish ★)

Fundamentals:Inventory side, according to SMM statistics, the combined inventory of aluminum ingots in three major domestic regions totaled 446,000 mt on November 27, destocking 5,000 mt from the previous period; while the combined inventory of aluminum billets in two regions was 88,000 mt, flat from the previous period. Demand side, the operating rate of downstream processing materials this week increased by 0.4 percentage points WoW to 62.3%, with slight rises in the operating rates of primary aluminum alloy, secondary aluminum alloy, aluminum extrusion, and aluminum wire and cable sectors, while the operating rate of plate/sheet, strip and foil remained unchanged.

Primary Aluminum Market:The SHFE aluminum 12 contract mainly traded within a narrow range. In east China, approaching the year-end, holders actively sold goods to recoup funds, increasing spot supply in the market. Downstream buyers mainly made just-in-time procurement. At market opening, transactions were at a discount of around 10 yuan/mt against the SMM average price; the absolute price rose slightly MoM from the previous day, prompting a slight rebound in holders' willingness to sell. Spot discounts widened, with actual transaction prices mainly at a discount of around 20 yuan/mt against the SMM average price. This Thursday, the selling sentiment index in the east China market was 2.94, down 0.04 WoW; the purchasing sentiment index was 2.78, down 0.10 WoW. On November 27, SMM A00 aluminum was quoted at 21,460 yuan/mt, up 60 yuan/mt from the previous trading day, at a discount of 40 yuan/mt against the 12 contract, down 20 yuan/mt from the previous trading day. On Thursday, trading activity in the central China market remained predominantly sluggish. SHFE aluminum futures prices edged up slightly. From pre-market opening, prices were weak and continued this trend. Downstream traders preferred purchasing with large discounts, but with year-end long-term contract signings approaching, traders showed clear willingness to hold prices firm. Transaction prices were higher than buyers' offered prices. Ultimately, actual market transaction prices hovered around parity with the central China price to a discount of 20 yuan/mt against the central China price. The selling sentiment index for the central China market on Thursday was 2.94, down 0.01 WoW; the purchasing sentiment index was 2.81, down 0.06 WoW. SMM's central China price closed at 21,340 yuan/mt, up 50 yuan/mt from the previous trading day, at a discount of 160 yuan/mt against the December contract, down 30 yuan/mt from the previous trading day. The Henan-Shanghai price spread was -120 yuan/mt, down 10 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials:On Thursday, spot primary aluminum prices continued their slight increase from the previous trading day, with the SMM A00 spot price closing at 21,460 yuan/mt. The aluminum scrap market followed the rise collectively. Entering late November, downstream demand for aluminum scrap showed significant divergence. Demand for scrap used in cast aluminum alloys remained robust with a slight increase, providing more support for consumption, and some scrap-consuming enterprises in Shandong reported that raw material procurement was characterized by nominal prices without actual transactions. Demand for scrap used in wrought aluminum alloys began to show signs of weakening; however, tight market supply remained the dominant theme, keeping procurement prices high. On Thursday, baled UBC was quoted centrally at 16,275-16,575 yuan/mt (ex-tax), shredded aluminum tense scrap (priced based on aluminum content) was quoted centrally at 18,000-18,650 yuan/mt (ex-tax). Prices for clean tapping aluminum wire, mixed aluminum extrusion scrap free of paint, mechanical casting aluminum scrap, scrap motorcycle wheel, and mixed aluminum tense scrap increased slightly by 0-50 yuan/mt WoW, while baled UBC prices increased by 50-150 yuan/mt WoW. Aluminum scrap prices in Sichuan, Guizhou, Henan, and Hubei were largely stable WoW. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference for mixed aluminum extrusion scrap free of paint in Foshan was 2,406 yuan/mt, and the price difference for bare bright aluminum wire in Jiangsu was 873.8 yuan/mt. The aluminum scrap market is expected to continue fluctuating at highs this week, with the mainstream price range for shredded aluminum tense scrap (priced based on aluminum content) likely fluctuating between 17,800-18,600 yuan/mt. Supply side, the tight supply situation in the aluminum scrap market is difficult to change in the short term, but as primary aluminum prices fluctuate at highs, fear of high prices in the market may intensify, and the willingness to follow price increases in some regions may weaken. Overall, the market will continue the high-level tug-of-war between sellers and buyers; it is recommended to closely track primary aluminum price trends and adjustments in downstream enterprises' procurement strategies.

Secondary Aluminum Alloy:On Thursday, the most-traded cast aluminum alloy futures contract, 2601, opened at 20,780 yuan/mt, reached a high of 20,865 yuan/mt, and closed at the day's low of 20,680 yuan/mt, down 15 yuan/mt or 0.07% from the previous close. Trading volume was 4,744 lots, and open interest was 5,516 lots, with the reduction mainly driven by bulls. Spot side, on Thursday this week, SMM A00 aluminum spot prices edged up 60 yuan/mt from the previous trading day to 21,460 yuan/mt, while ADC12 prices held steady at 21,350 yuan/mt. This week, aluminum price fluctuations narrowed, aluminum scrap prices followed with minor adjustments, and prices of auxiliary materials such as silicon remained stable, resulting in limited marginal changes in overall costs. Although cost pressure on enterprises eased slightly, the core tight supply situation for aluminum scrap has not substantially improved. Demand side, as price trends stabilized, downstream purchasing sentiment improved. In addition, automakers’ year-end push for annual targets has kept secondary aluminum enterprises’ automotive sector orders full, effectively supporting demand resilience in the secondary aluminum market. Overall, the effects of year-end demand push and front-loading of orders due to policy changes continue to emerge, coupled with support from high raw material costs. Secondary aluminum alloy prices are expected to fluctuate rangebound in the near term, with price resilience remaining. Import side, current overseas ADC12 quotation range remains at $2,600–2,630/mt, with immediate import losses widening to around 500 yuan/mt, keeping the import window closed.

Aluminum Market Summary:Overall, macro front, domestic and overseas macro sentiment leans favorable, with dovish voices reemerging within the US Fed and market expectations for US Fed interest rate cuts heating up. Foreign institutions widely predict that China’s economy will maintain steady growth next year with policy support, boosting market confidence. Fundamental side, earlier aluminum price suppression on consumption has delayed some demand. This week, the weekly operating rate of leading domestic aluminum processing enterprises rose 0.3% WoW to 62.3%, with operating improvements seen in aluminum extrusion, aluminum wire and cable, primary and secondary aluminum alloy segments to varying degrees. Overall, fundamentals provide some support to prices. Recently, aluminum prices have been mainly influenced by macro sentiment fluctuations. Overseas, the progress of production cuts at the Icelandic aluminum plant remains a key focus. In the short term, aluminum prices are expected to continue fluctuating at highs. [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.]