Interest Rate Cut Expectations Fail to Offset Off-Season Realities, Aluminum Prices' Upside Momentum at High Levels Remains Limited [SMM Aluminum Morning Meeting Minutes]

12.11 SMM Morning Meeting Minutes

Futures:SHFE aluminum closed at 21,960 yuan/mt in the night session, up a slight 0.18%. Prices moved narrowly close to MA5 (21,959) and MA10 (21,958), with short-term moving averages flattening out, staying above MA60 (21,941.08), indicating a slightly stronger structure. The MACD dual lines were above the zero axis (DIF 4.4673, DEA 4.3754), but the histogram was only 0.1838, suggesting weak upward momentum. The core trading range for SHFE aluminum is suggested at 21,800-22,100. LME aluminum closed at $2,862.5/mt, rebounding 0.60%. Prices remained below all major moving averages, with MA5 (2,867.50) acting as short-term resistance. The MACD dual lines were below the zero axis (DIF -0.8340, DEA -0.3347), with a histogram of -0.9985, indicating the bearish pattern remained unchanged, and market trading was sluggish. The core trading range for LME aluminum is suggested at 2,840-2,900.

Macro front:Early this morning, the US Fed's FOMC announced after its meeting a 25-basis-point interest rate cut, lowering the target range for the federal funds rate to 3.50%–3.75%. This was the Fed's third rate cut this year, following cuts on September 17 and October 29, each by 25 basis points. (Bullish★) Data released by the National Bureau of Statistics (NBS) showed China's November CPI rose 0.7% YoY, the highest since March 2024. (Bullish★)

Fundamentals:Domestically, individual new aluminum projects began powering up pots, leading to a slight increase in operating capacity and a small rise in weekly production. Overseas, new aluminum projects in Indonesia were ramping up production, with supply expected to increase MoM. Regarding the proportion of liquid aluminum, last week's SMM weekly proportion recorded 76.6%, down 0.26 percentage points WoW. As the off-season deepened, downstream operating rates showed a marginal declining trend, with aluminum billet enterprises expected to implement more production cuts in December. On inventory, according to SMM statistics, domestic mainstream consumption area aluminum ingot inventory recorded 583,000 mt this Monday, destocking 12,000 mt compared to last Monday. On one hand, aluminum ingot transportation in Xinjiang faced seasonal resistance with tight transport capacity, expected to cause some accumulation in Xinjiang. On the other hand, high absolute prices reduced downstream purchase willingness, likely affecting warehouse withdrawals.

Primary aluminum market:In the morning session, the SHFE aluminum December contract fluctuated upward, but the absolute price pulled back compared to the previous trading day. Market sentiment in east China recovered, with downstream maintaining just-in-time procurement, while traders actively purchased. Spot discounts were significant, holders held prices firm and were reluctant to sell, with actual transactions mainly at parity to a premium of 10 yuan/mt against the SMM average price, showing signs of narrowing spot discounts. On Wednesday, the sales sentiment index in the east China market was 2.71, up 0.09 MoM; the purchase sentiment index was 2.63, up 0.03 MoM. SMM A00 aluminum closed at 21,770 yuan/mt, down 110 yuan/mt from the previous trading day, at a discount of 90 yuan/mt against the December contract, flat from the previous trading day. On Wednesday, trading activity in the central China market held steady. As futures prices pulled back, downstream purchase willingness rebounded. However, with wide premiums/discounts and inter-month spreads, most holders adopted a wait-and-see stance. Market supply was tight, leading buyers to raise prices successively, pushing market offers higher. Actual transaction prices eventually ranged from a premium of 10 yuan to a premium of 50 yuan over the central China price. On Wednesday, the sales sentiment index in the central China market was 2.78, down 0.08 MoM; the purchase sentiment index was 2.79, up 0.01 MoM. SMM central China aluminum closed at 21,660 yuan/mt, down 80 yuan/mt from the previous trading day, at a discount of 200 yuan/mt against the December contract, up 30 yuan/mt from the previous trading day. The Henan-Shanghai price spread was -110 yuan/mt, up 30 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials: On Wednesday, spot primary aluminum prices fell from the previous trading day, with SMM A00 aluminum closing at 21,770 yuan/mt. The aluminum scrap market followed the decline. Entering December, downstream demand for aluminum scrap showed clear 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 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 raw material inventories, leading to a temporary slowdown in procurement of extrusion scrap. On Wednesday, baled UBC was quoted in a range of 16,250–16,750 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was quoted in a range of 18,100–18,650 yuan/mt (ex-tax). Prices for baled UBC, clean tapping aluminum wire, mixed aluminum extrusion scrap free of paint, mechanical casting aluminum scrap, scrap motorcycle wheel, and mixed aluminum tense scrap fell by 100 yuan/mt MoM. 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 1,836 yuan/mt on December 5, while the price difference between A00 aluminum and bare bright aluminum wire in Jiangsu was 888.1 yuan/mt. The aluminum scrap market is expected to hover at highs this week, with shredded aluminum tense scrap (priced based on aluminum content) forecast in the range of 18,500–19,200 yuan/mt (ex-tax). The tight supply situation is hard to reverse, with import and recycling constraints continuing to support prices. Demand side, the year-end push for targets by secondary aluminum producers and the dampening effect of high prices are intertwined, leading extrusion and rolling scrap utilization enterprises to purchase cautiously amid high prices. Primary aluminum price trends serve as the core guidance, coupled with the impact of environmental protection-driven production restrictions and transport constraints in central China, keeping market sentiment 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, on Wednesday, the most-traded 2602 cast aluminum alloy futures contract opened at 20,880 yuan/mt and fluctuated upward during the day. The futures surged in the afternoon, reaching a high of 21,070 yuan/mt before pulling back, closing at 20,930 yuan/mt, up 60 yuan/mt or 0.29% from the previous close. Trading volume was 4,157 lots, with open interest at 17,403 lots. Bulls slightly increased their positions but sentiment remained cautious. In the spot market, SMM A00 aluminum spot price decreased by 110 yuan/mt to 21,770 yuan/mt, while ADC12 prices fell by 100 yuan/mt to 21,500 yuan/mt. With aluminum prices retreating from highs, cost support from aluminum scrap weakened, leading to overall pressure and a downward shift. The spot market showed a weak operating pattern. On the demand side, there were signs of weakening, and with a significant drop in aluminum futures this week, downstream enterprises' wait-and-see sentiment intensified, resulting in moderate trading activity. Considering supply and demand as well as cost factors, ADC12 aluminum alloy prices are expected to continue in the doldrums in the short term. Imports, Southeast Asian market ADC12 quotes slightly decreased to $2,620–$2,640/mt. Due to the simultaneous decline in domestic prices, import losses remain around 400 yuan/mt, keeping the theoretical import window closed.

Aluminum Market Summary: Macro positives have been realized: the US Fed's third interest rate cut of the year, as expected, continued its accommodative monetary policy stance. Coupled with an expanded YoY increase in China's November CPI, it somewhat alleviated concerns over domestic deflationary pressures, providing some support for aluminum prices on the macro sentiment level. However, the reality of weakening fundamentals is becoming clearer. Fundamentals side, this year's Chinese New Year break is later, limiting the extent of the decline in electrolytic aluminum demand in December. New capacity production release will take time, with limited output growth in December. Although inventory levels declined, this was mainly due to transportation disruptions in Xinjiang causing in-transit accumulation, rather than strong actual consumption. In summary, robust macro expectations and policy direction provide solid downside support, effectively limiting the depth of any aluminum price decline; however, upside room will be constrained by gradually weakening spot consumption. It is expected that prices will hover at highs in the short term, lacking sufficient momentum for further gains.

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