Policy support coupled with transportation disruptions underpins the bottom High prices suppress demand, beware of pullback risks [SMM Aluminum Morning Meeting Minutes]

December 8 SMM Morning Meeting Minutes

Futures:SHFE aluminum 2601 closed at 22,165 yuan/mt in the night session, down 0.23%. Technically, moving averages formed a bullish alignment but flattened in the short term, with MA5 (22,165) and MA10 (22,163) converging above MA30 (22,158.67) and MA60 (22,154.25), indicating support remains in the medium to short term but momentum weakened. In the MACD indicator, DIF (2.8142) was above DEA (2.0748), and the histogram (MACD: 1.4788) was positive but not expanding significantly, suggesting limited upward momentum. Resistance for SHFE aluminum is suggested at 22,250-22,350, with support at 22,000-22,100. LME aluminum closed at $2,900.5/mt in the night session, up 0.45%, with moving averages across periods highly convergent—MA5 ($2,903.30) to MA60 ($2,904.48) nearly forming a straight line—indicating the market is in an extremely tight equilibrium. The MACD indicator was below the zero axis, with DIF (-0.4403) and DEA (-0.2512) slowly converging and the green histogram (-0.3783) contracting, signaling weakening downward momentum but no trend reversal yet.

Macro Front:Li Lecheng, Secretary of the Party Leadership Group and Minister of the Ministry of Industry and Information Technology, chaired a brainstorming session to study and plan work ideas and measures for the "16th Five-Year Plan" and its inaugural year. Li Lecheng emphasized the need to make strenuous efforts in "strengthening the foundation" and value creation, striving for excellence and winning through quality, to fully promote stable growth in the industrial economy. Comprehensive rectification of "involution-style" competition should be a focus, further deepening reforms comprehensively. It is essential to ensure the security of key industry chains and supply chains, enhance security capabilities in areas such as networks, data, and artificial intelligence, to form competitive advantages and gain strategic initiative. (Bullish ★) The US core PCE price index YoY unexpectedly pulled back to 2.8% in September, hitting a three-month low, while market expectations were for it to remain at 2.9% for the third consecutive month. (Neutral ★) White House Economic Council Director Hassett stated that it is time for the US Fed to prudently cut interest rates. (Bullish ★)

Fundamentals:Domestically, individual new aluminum projects began powering up pots, with operating capacity edging up and weekly production showing a slight increase; overseas, new aluminum projects in Indonesia are ramping up production, and supply is expected to increase MoM. Regarding the proportion of liquid aluminum, last week's SMM weekly proportion of liquid aluminum recorded 76.6%, down 0.26 percentage points WoW. As the off-season deepens, downstream operations showed a marginal decline, with aluminum billet enterprises expected to implement more production cuts in December. Inventory-wise, according to SMM statistics, domestic aluminum ingot inventory in mainstream consumption areas recorded 595,000 mt this Monday, destocking 1,000 mt compared to last Thursday. On one hand, aluminum ingot transportation in Xinjiang faced seasonal resistance, with tight transport capacity, leading to an expected buildup of aluminum ingots in the region. On the other hand, high absolute prices reduced downstream purchase willingness, and warehouse withdrawals were expected to be affected.

Primary aluminum market: In the morning session, SHFE aluminum 12 contract continued to fluctuate upward. With absolute prices rising further, the east China market saw sluggish transactions. High absolute prices prompted aluminum plants to actively sell, resulting in ample supply, but downstream buyers were cautious. Some downstream buyers quoted at premiums of -30 to -20 yuan/mt against the SMM average price. Traders' discount purchases increased slightly, with actual transaction prices hovering around -20 to -10 yuan/mt against the SMM average price. Last Friday, the east China market's selling sentiment index was 2.7, down 0.04 MoM; the purchasing sentiment index was 2.62, down 0.03 MoM. SMM A00 aluminum closed at 22,090 yuan/mt, up 70 yuan/mt from the previous trading day, at a discount of 80 yuan/mt against the 12 contract, down 20 yuan/mt from the previous trading day. As aluminum prices continued to strengthen, traders' purchasing sentiment weakened, mostly for hedging purposes, leading to a relatively cold market. Holders were optimistic about prices, showing high selling sentiment, but the market cooled with fewer transactions. The final transaction price in the central China market ranged from parity to a 30 yuan/mt discount against the central China price. Last Friday, the central China market's selling sentiment index was 2.89, down 0.08 MoM; the purchasing sentiment index was 2.77, down 0.05 MoM. SMM central China closed at 21,940 yuan/mt, up 50 yuan/mt from the previous trading day, at a discount of 230 yuan/mt against the 12 contract, down 40 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -150 yuan/mt, down 20 yuan/mt from the previous trading day.

Recycled aluminum raw materials: Last Friday, spot primary aluminum prices rose compared to the previous trading day, with SMM A00 spot closing at 22,090 yuan/mt, while the aluminum scrap market remained stable. Entering December, demand for aluminum scrap diverged significantly. Demand for casting-grade aluminum alloys was robust and showed slight growth, providing more support for consumption. In Henan, year-end environmental protection measures intensified, and transportation restrictions affected shipping efficiency. Meanwhile, some scrap utilization enterprises reported high inventories of extrusion scrap collected during the peak season, lacking sufficient orders on hand to offset raw material inventory, thus slowing the procurement pace for extrusion scrap. Last Friday, baled UBC scrap was concentratedly quoted at 16,450-16,950 yuan/mt (excluding tax), and shredded aluminum tense scrap (priced based on aluminum content) was concentratedly quoted at 18,400-18,900 yuan/mt (excluding tax). Baled UBC prices were up 50 yuan/mt MoM, 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 remained unchanged MoM. In terms of the price difference, on December 5, the price difference between A00 aluminum and shredded aluminum tense scrap closed at 1,814 yuan/mt, and the price difference for bare bright aluminum wire in Jiangsu was 885.6 yuan/mt. The secondary aluminum scrap market is expected to hover at highs next week, with the mainstream quotation range for shredded aluminum tense scrap (priced based on aluminum content) at 18,500–19,200 yuan/mt (tax excluded). The tight supply situation is difficult to change, as import and recycling constraints persist, providing a floor for prices. Demand side, the push for annual targets at year-end by secondary aluminum enterprises and the dampening effect of high prices are intertwined, causing scrap utilization enterprises in extrusion and rolling sectors to be cautious about purchasing due to high prices. Primary aluminum price trends serve as the core guidance, coupled with the impact of environmental protection-driven production restrictions and transportation constraints in central China, market sentiment remains cautious. Overall, the tug-of-war between sellers and buyers continues, requiring close monitoring of primary aluminum fluctuations, environmental protection policies, and downstream procurement pace, while staying alert to the risk of a pullback from highs.

Secondary Aluminum Alloy: Futures side, the most-traded cast aluminum alloy futures contract (2602) opened at 21,040 yuan/mt last Friday, reached a high of 21,320 yuan/mt and a low of 20,970 yuan/mt, and finally closed at 21,190 yuan/mt, up 120 yuan/mt or 0.57% from the previous close. Trading volume was 8,304 lots, and open interest was 16,876 lots, mainly driven by increased long positions. The price spread between AD and AL continued to widen to around 1,200 yuan/mt. Spot side, the SMM A00 aluminum spot price rose again by 70 yuan/mt to 22,090 yuan/mt last Friday, hitting a new high for the year, while the ADC12 price held steady at 21,700 yuan/mt, with the inverted price spread between the two continuing to widen. Cost side, aluminum scrap prices partially increased following aluminum prices last Friday, while copper prices continued to rise, reaching a new high of 91,585 yuan/mt, leading to continuously rising raw material costs. The cost share of aluminum scrap and copper auxiliary materials continued to increase, with cost remaining the main driver of ADC12 price increases. Demand side, aluminum prices surging to yearly peaks have suppressed short-term procurement pace downstream. Some die-casting enterprises faced shrinking profits due to cost pressure, and some fell into losses, resulting in lower operating rates. However, year-end demand from end-users to push for annual targets still supports industry resilience. Overall, ADC12 prices are expected to continue fluctuating at highs in the short term. Looking at the weekly spot-futures price spread, the futures showed an upward trend in the first three days, but spot prices remained relatively stable, leading to an expansion of the futures discount. Subsequently, cast aluminum alloy futures came under pressure, diverging significantly from SHFE aluminum trends—SHFE aluminum futures surged strongly to a high of 22,350 yuan/mt, driving rapid increases in aluminum scrap prices. Combined with rising copper prices, production costs were significantly pushed higher. Against this backdrop, spot ADC12 prices followed up quickly, and the spot-futures price spread narrowed significantly. Import side, current overseas ADC12 quotations are in the range of $2,600–2,640/mt. As domestic prices rise, the immediate import loss has narrowed to around 200 yuan/mt.

Aluminum Market Summary: The domestic MIIT is planning for the 16th Five-Year Plan period, emphasizing promoting steady industrial growth, ensuring the security of key industry chains, and curbing "involution-style" competition. This clarifies the policy's supportive direction for the real manufacturing sector, helping to stabilize market expectations for downstream aluminum processing and end-use consumption, and providing a policy floor for aluminum demand. US core PCE inflation pulled back, coupled with White House officials urging the US Fed to cut interest rates cautiously, reinforcing market expectations for a shift to looser monetary policy. This eased upward pressure on the US dollar, boosting risk appetite and valuation support for commodities represented by aluminum from the perspectives of financial attributes and global liquidity. Overall, the macro front currently features a strong favorable atmosphere, with rising copper prices driving aluminum prices higher. Fundamentals side, this year's Chinese New Year break occurs relatively late, limiting the extent of weakening demand for aluminum in December. The release of production from new aluminum capacity still requires some time, resulting in limited production growth in December. Additionally, transportation of aluminum ingots in Xinjiang is expected to face certain seasonal obstacles, leading to relatively favorable inventory performance for aluminum ingots, which provides some fundamental support for rising aluminum prices. However, excessively high aluminum prices are expected to strongly suppress end-use consumption, necessitating vigilance against the risk of a pullback in aluminum prices at high levels.

[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 to replace independent judgment. Any decisions made by clients are unrelated to SMM.]