[SMM Aluminum Morning Meeting Minutes] Macro Tailwinds and Fundamental Support Propel SHFE Aluminum Higher in Night Session, Maintaining High Levels

12.5 SMM Morning Meeting Summary

Futures: During the night session on December 4, the most-traded SHFE aluminum 2601 contract opened at 22,015 yuan/mt, reaching a high of 22,285 yuan/mt and a low of 21,990 yuan/mt, closing at 22,235 yuan/mt, up 175 yuan/mt or 0.79% from the previous close. From a technical perspective, the MA lines showed a divergent pattern (MA5: 22,017.00 > MA10: 21,913.50 > MA20: 21,676.25 < MA40: 21,690.75), with the MACD 4-hour chart showing a continued red bar in a golden cross state (DIFF: 141.55, DEA: 81.66). Open interest for the night session was around 246,000 lots, an increase from the daytime session. LME aluminum opened at $2,896/mt, reached a high of $2,911/mt, and a low of $2,877.5/mt, closing at $2,887.5/mt, down 0.33%. Trading volume was 25,100 lots, a decrease of 903 lots, while open interest was 706,000 lots, an increase of 5,019 lots.

Macro front: Data released by the US on Thursday showed that, as of the week ending November 29, seasonally adjusted initial claims for government unemployment benefits decreased by 27,000 to 191,000, the lowest level since September 2022. Economists had forecast 220,000, alleviating concerns about a sharp deterioration in the labour market, but failing to change expectations for a US Fed interest rate cut next week. (Bullish ★) The China Passenger Car Association released a brief analysis of the "15th Five-Year Plan" proposal, which emphasized "effective quality improvement," indicating that economic growth will be more driven by increases in total factor productivity, enhanced contributions from technological innovation, and green, low-carbon transformation. Initiatives to boost domestic demand and strengthen the internal circulation are expected to push domestic auto sales to over 35 million units during the "15th Five-Year Plan" period, with NEV penetration rates exceeding 70%, and advanced intelligent driving becoming more widespread. (Bullish ★)

Fundamentals: Proportion of liquid aluminum, this week's SMM weekly proportion of liquid aluminum recorded 76.6%, down 0.26 percentage points MoM. As the off-season deepens, downstream operating rates show a marginal decline, with aluminum billet enterprises expected to see more production cuts in December. This week, the operating rate of leading domestic aluminum processing enterprises decreased by 0.4 percentage points MoM to 61.9%, with the market continuing to show structural divergence. The operating rate of primary aluminum alloy remained stable at 60.2%, with mainstream enterprises delivering long-term contracts steadily, but high aluminum prices suppressed spot order transactions, leading to cautious demand. In terms of inventory, social inventory of aluminum ingot held steady at 596,000 mt. On one hand, aluminum ingot transportation in Xinjiang faced seasonal resistance, with tight transport capacity, likely causing some accumulation in Xinjiang. On the other hand, high absolute prices reduced purchase willingness, and warehouse withdrawals were expected to be affected.

Primary Aluminum Market:The SHFE aluminum December contract mainly fluctuated upward in the morning session. In east China, market activity was more sluggish, with the absolute price breaking above 22,000 yuan/mt. Downstream buying sentiment turned more cautious, with buyers' offers at discounts of 30 to 20 yuan/mt against the SMM average price. However, holders showed little willingness to sell at large discounts, and actual transaction prices hovered around a discount of about 10 yuan/mt against the SMM average price. On Thursday this week, the selling sentiment index in the east China market was 2.74, down 0.08 WoW; the purchasing sentiment index was 2.65, down 0.04 WoW. SMM A00 aluminum was quoted at 22,020 yuan/mt, up 220 yuan/mt from the previous trading day, at a discount of 60 yuan/mt against the December contract, down 10 yuan/mt from the previous trading day. With aluminum prices staying high, trading in the central China market cooled. Downstream enterprises mainly restocked for rigid demand, leading to a decline in buyers' purchasing sentiment, with transactions focused on long-term contract deliveries. Ultimately, actual market transaction prices continued to weaken from pre-opening levels, ranging from a discount of 20 yuan/mt to a premium of 10 yuan/mt against the central China price. On Thursday this week, the selling sentiment index in the central China market was 2.97, up 0.01 WoW; the purchasing sentiment index was 2.82, down 0.03 WoW. SMM central China closed at 21,890 yuan/mt, up 210 yuan/mt from the previous trading day, at a discount of 190 yuan/mt against the December contract, down 20 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -130 yuan/mt, down 10 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials:This Thursday, spot primary aluminum prices rose significantly compared to the previous trading day, with SMM A00 spot closing at 22,020 yuan/mt, and the aluminum scrap market followed the increase collectively. Entering December, downstream demand for aluminum scrap showed significant divergence. Demand for scrap used in cast aluminum alloys remained stable with a slight increase, providing more support for consumption. In Henan, intensified year-end environmental protection measures and transportation restrictions affected delivery efficiency. Meanwhile, some scrap utilization enterprises reported high inventories of extrusion scrap collected during the peak season, lacking sufficient orders on hand to hedge against raw material inventories, leading to a temporary slowdown in the procurement pace for extrusion scrap. This Thursday, baled UBC was centrally quoted at 16,400-16,900 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was centrally quoted at 18,400-18,900 yuan/mt (ex-tax). Baled UBC prices were up 100 yuan/mt WoW, while clean tapping aluminum wire, mixed aluminum extrusion scrap free of paint, mechanical casting aluminum scrap, scrap motorcycle wheel, and mixed aluminum tense scrap prices were up 200 yuan/mt WoW. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and shredded aluminum tense scrap closed at 1,749 yuan/mt on December 4, and the price difference between A00 aluminum and bare bright aluminum wire in Jiangsu was 891.3 yuan/mt. The aluminum scrap market is expected to hover at highs next week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) at 18,500-19,200 yuan/mt (ex-tax). The tight supply pattern is difficult to change, and import and recycling constraints persist, providing a floor for prices. Demand side, the year-end push for annual target of secondary aluminum and the high price suppression effect intertwine, with extrusion and rolling scrap utilization enterprises being cautious about high prices. The trend in primary aluminum prices serves as the core guide, compounded by environmental protection-driven production restrictions and transportation constraints in central China, leading to a cautious market sentiment. The tug-of-war between sellers and buyers continues, requiring close monitoring of primary aluminum fluctuations, environmental protection policy, and downstream procurement pace, while being vigilant against the risk of a pullback from highs.

Secondary Aluminum Alloy: Futures, on Thursday, the most-traded 2602 cast aluminum alloy futures contract opened at 21,160 yuan/mt, reached a high of 21,205 yuan/mt, and a low of 20,900 yuan/mt, closing at 210,705 yuan/mt, down 75 yuan/mt or 0.35% from the previous close. Trading volume was 7,304 lots, with open interest at 16,333 lots, mainly due to an increase in short positions. On Thursday, the gain in the most-traded cast aluminum futures contract narrowed significantly compared to SHFE aluminum futures, with the AD-AL price spread widening to 990 yuan/mt. Currently, registered warrants for aluminum alloys are at a high level, and under high aluminum prices, traders face difficulties in selling, resulting in weak destocking, which suppresses futures. Spot, on Thursday, SMM A00 spot aluminum prices surged 220 yuan/mt to 22,020 yuan/mt, with ADC12 prices following suit, rising 200 yuan/mt to 21,700 yuan/mt, further expanding the price inversion. Cost, on Thursday, aluminum scrap prices rose sharply along with aluminum prices, and copper prices hit a new high above 91,245 yuan/mt, driving up raw material costs. The cost share of aluminum scrap and copper auxiliary materials continued to rise, with cost remaining the main driver for the increase in ADC12 prices. Demand, the surge in aluminum prices to the year's peak has suppressed short-term procurement pace, with some die-casting enterprises seeing profit margins shrink due to cost pressure, and some even falling into losses, leading to a decline in operating rates. However, the year-end push for annual targets still supports industry resilience. Overall, in the short term, ADC12 prices are expected to fluctuate at highs.

Summary of Aluminum Market Trends: Macro perspective, a favorable atmosphere provides momentum for the recent hold-up well in aluminum prices. Domestically, on November 30, data from the National Bureau of Statistics showed that China's manufacturing PMI stood at 49.2%, up 0.2 percentage points MoM, indicating an improvement in business activity; in November, the People's Bank of China net injected 5 billion yuan through open market treasury bond operations. Overseas, early December saw the US Fed release the minutes of its November meeting, focusing on balancing market employment risks and inflation. According to CME data, the probability of a 25-basis-point interest rate cut in December increased to 84.7%, boosting non-ferrous metals. Fundamentals side, this year's Chinese New Year break is later, limiting the extent of weakening demand for aluminum in December. New capacity for aluminum production will take some time to release, with limited output growth in December. Additionally, seasonal obstacles to aluminum ingot transportation in Xinjiang are expected, likely leading to a relatively better inventory performance, providing some fundamental support for aluminum price rises. Amid the resonance of macro fundamentals, SMM expects aluminum prices to hover at highs, but excessively high aluminum prices are anticipated to strongly suppress end-use consumption, necessitating vigilance against the risk of a pullback in aluminum prices from elevated levels.

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