Macro Strong Expectations Compete with Weak Fundamentals in Reality, Aluminum Prices Expected to Fluctuate at Highs with Pattern Hard to Break [SMM Aluminum Morning Meeting Minutes]

12.1 SMM Morning Meeting Summary

Futures: SHFE aluminum night session closed at 21,835 yuan/mt, down 0.70%. Prices fluctuated rangebound around MA5 (21,829.00) and MA10 (21,829.50), but remained below MA60 (21,839.25), with moving averages in a bearish arrangement. In the MACD indicator, DIF (-2.2182) and DEA (-2.6824) were below the zero line, but the histogram turned positive (0.9285), indicating a slight easing of short-term downward momentum. The core operating range for SHFE aluminum is suggested to be 21,700-22,100. LME aluminum closed at $2,845.5/mt, plunging 1.42%. Prices have broken through all key moving averages, with MA5 (2,846.10) and MA60 (2,851.80) forming resistance above. In the MACD indicator, DIF (1.7819) and DEA (-1.9974) signals were conflicting, with a positive histogram (0.4310), suggesting potential near-term volatility. Trading volume shrank significantly, with a strong wait-and-see sentiment in the market. The core operating range for LME aluminum is suggested to be 2,830-2,900.

Macro Front: The US Fed is expected to cut interest rate for the third consecutive time amid internal divisions, after which officials may signal a pause; CME's FedWatch tool shows that the market has highly priced in a 25-basis-point rate cut. Kevin Hassett, director of the White House National Economic Council, stated that he believes there is still significant room for the Fed to cut rates. (Bullish ★) US President Trump said he would use support for an immediate and substantial rate cut as a "litmus test" for selecting a new Fed chairman, and noted that adjusting tariff policies could help lower prices for some goods. (Bullish ★)

Fundamentals: Domestically, some newly constructed aluminum projects began power-up, leading to a slight increase in operating capacity and a small rise in weekly production. Overseas, a new electrolysis aluminum project in Indonesia is ramping up, with supply expected to increase MoM. Regarding the proportion of liquid aluminum, last week SMM recorded a weekly ratio of 76.6%, down 0.26 percentage points MoM. As the off-season deepens, downstream operations are showing a marginal decline, with more production cuts expected from aluminum billet enterprises in December. Inventory-wise, according to SMM, on Monday, domestic mainstream consumption area aluminum ingot inventory was 595,000 mt, a decrease of 1,000 mt from Thursday. On one hand, aluminum transportation in Xinjiang faces seasonal resistance, with tight transport capacity, leading to some stockpiling in Xinjiang. On the other hand, high absolute prices have reduced purchase willingness, and warehouse withdrawals are expected to be affected.

Primary Aluminum Market: In the morning session, the center of SHFE aluminum 12 contract moved lower. Market sentiment in east China improved as absolute prices pulled back, boosting downstream purchase willingness slightly. Suppliers held prices firm, with quotations mainly at discounts of 10 yuan/mt to parity against the SMM average price. Actual transaction prices also hovered around this range, and spot discounts did not widen further on Tuesday. The east China market selling sentiment index was 2.62 on Tuesday, up 0.01 WoW, while the purchasing sentiment index was 2.60, up 0.02 WoW. SMM A00 aluminum was quoted at 21,880 yuan/mt, down 40 yuan/mt from the previous trading day, at a discount of 90 yuan/mt against the December contract, flat from the previous trading day. Trading in the central China market was relatively active on Tuesday. As futures absolute prices retreated, downstream purchase willingness improved, accompanied by traders' hedging purchases, boosting market trading volume. Suppliers showed clear intentions to hold prices firm. Final transaction prices continued to rise, ranging from parity to premiums of 30 yuan/mt against the central China price before the market opened. The central China market selling sentiment index was 2.86 on Tuesday, down 0.02 WoW, while the purchasing sentiment index was 2.78, up 0.02 WoW. SMM central China aluminum closed at 21,740 yuan/mt, down 30 yuan/mt from the previous trading day, at a discount of 230 yuan/mt against the December contract, up 10 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -140 yuan/mt, up 10 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials: Spot primary aluminum prices fell on Tuesday compared to the previous trading day, with SMM A00 aluminum closing at 21,880 yuan/mt. The aluminum scrap market followed the decline. Entering December, downstream demand for aluminum scrap showed significant divergence. Demand for scrap used in cast aluminum alloys remained stable with slight growth, providing more support for consumption. In Henan, intensified year-end environmental inspections and transport 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 procurement pace for extrusion scrap. On Tuesday, baled UBC was quoted in a range of 16,350-16,850 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was quoted in a range of 18,200-18,750 yuan/mt (ex-tax). Baled UBC prices held steady 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 fell by 25-100 yuan/mt WoW. In terms of the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and shredded aluminum tense scrap closed at 1,829 yuan/mt on December 5, and the price difference for Jiangsu bare bright aluminum wire was 890.6 yuan/mt. The aluminum scrap market is expected to hover at highs this week, with shredded aluminum tense scrap (priced based on aluminum content) mainly ranging between 18,500-19,200 yuan/mt (ex-tax). The tight supply situation is difficult to change, with constraints on imports and recycling still persisting, providing a floor for prices. On the demand side, the year-end push for annual targets in the secondary aluminum sector and the inhibitory effect of high prices are intertwined, leading extrusion and rolling scrap utilization enterprises to purchase cautiously due to price concerns. Primary aluminum price trends served as the core guidance, coupled with the impact of environmental protection-driven production restrictions and hindered transportation in central China, leading to cautious market sentiment. The overall tug-of-war between sellers and buyers continued, requiring close monitoring of primary aluminum fluctuations, environmental protection policies, and downstream procurement pace, while remaining vigilant against high-price pullback risks.

Secondary Aluminum Alloy:Futures side, on Tuesday, the most-traded cast aluminum alloy futures contract 2602 opened at 21,025 yuan/mt, reached a high of 21,095 yuan/mt. During the day, futures showed a fluctuating downward trend, hit a bottom of 20,750 yuan/mt, and finally closed at 20,800 yuan/mt, down 325 yuan/mt or 1.54% from the previous close. Trading volume was 5,382 lots, and open interest was 17,319 lots, with bears increasing positions dominating the market. Spot side, on Tuesday, the SMM A00 aluminum spot price was lowered by 40 yuan/mt to 21,880 yuan/mt, while the ADC12 price temporarily stabilized at 21,600 yuan/mt. Influenced by the high-price pullback transmission from aluminum prices, cost support from aluminum scrap continued to weaken, overall under pressure moving lower, and the spot market showed a pattern of being in the doldrums. Demand side, this week's significant decline in aluminum futures prices caused downstream enterprises' wait-and-see sentiment to intensify again, with overall market trading activity being moderate. Considering the combined impact of supply-demand and cost side, ADC12 aluminum alloy prices are expected to continue a fluctuating trend in the doldrums in the short term. Import side, current ADC12 offers in the Southeast Asian market are at $2,640–2,660/mt, with the immediate import loss widening to above 400 yuan/mt, further suppressing import window activity.

Aluminum Market Summary:The macro front showed a significantly positive atmosphere, with high market expectations for the US Fed's third consecutive interest rate cut in December. Comments from the White House and President Trump further strengthened the imagination of future loose monetary policy, continuously providing liquidity premium support and inflation expectation benefits for non-ferrous metals. However, the realistic pressure from the marginally weakening fundamentals became clearer. Fundamentals side, this year's Chinese New Year break is relatively late, the weakening extent of aluminum demand in December was limited, the production release from new aluminum capacity still requires some time, and production growth in December was limited; although inventory recorded a slight draw, it was mainly due to backlog in transit caused by hindered transportation in the Xinjiang region, rather than strong actual consumption digestion capacity at the consumption destinations. In summary, strong macro expectations for interest rate cuts and policy direction built a solid bottom support, effectively limiting the deep decline space for aluminum prices; but the fundamentals pattern of increasing supply and weak demand struggled to provide upward momentum, requiring vigilance against the risk of high-price retracement in the short term.

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