Amid the Tug-of-War Between Longs and Shorts, Short-Term Aluminum Prices Pull Back Slightly from Highs, While Medium and Long-Term Policies and Demand Resilience Provide Support [SMM Aluminum Morning Meeting Minutes]

12.16 SMM Morning Meeting Minutes

Futures: During the night session on December 15, the most-traded SHFE aluminum 2602 contract opened at 21,955 yuan/mt, reached a high of 21,970 yuan/mt, hit a low of 21,840 yuan/mt, and finally closed at 21,865 yuan/mt, down 55 yuan/mt or 0.25% from the previous close. From a technical perspective, the MA moving averages showed a divergent arrangement (MA5: 21,981.00 > MA10: 21,953.00 < MA20: 22,048.00 > MA40: 21,806.25), while the MACD 4-hour candlestick level continued to show a green bar (DIFF: 41.23, DEA: 82.98). In terms of open interest, the night session open interest was approximately 295,000 lots, an increase of 984 lots from the daytime session. LME aluminum opened at $2,869/mt, reached a high of $2,889/mt, hit a low of $2,859.5/mt, and finally closed at $2,875/mt, holding steady from the previous day. Trading volume was 18,900 lots, down 3,958 lots, and open interest was 695,000 lots, down 11,951 lots.

Macro front: Most economists and investors expect the Bank of England to cut interest rates by 25 basis points on Thursday, lowering the benchmark rate to 3.75%. This is one to two rate cuts away from the UK's "neutral rate" indicated by some data, including a metric recently cited by Governor Andrew Bailey. (Bullish ★) According to the CCTV News app, on the local time of December 15, US President Donald Trump stated that he had "very good conversations" with European leaders that day, many of which involved the Russia-Ukraine conflict, which they discussed at length, and things "seem to be going well". (Bearish ★)

Fundamentals: According to SMM statistics, domestic aluminum ingot warehouse withdrawals totaled 123,400 mt during December 8-14, up 7,500 mt from the previous week; domestic aluminum billet warehouse withdrawals totaled 43,200 mt during the same period, down 3,400 mt from the previous week. The domestic alumina market shows a significant oversupply pattern, aluminum capacity ceilings suppress demand, inventories continue to accumulate across various segments, and coupled with the impact of low-priced overseas products, these factors form the core drivers for the price decline.

Primary aluminum market: On Monday, the absolute price pulled back, sellers' intention to hold prices firm slightly increased, but with concentrated shipments and ample supply in the market, downstream buyers showed strong willingness to purchase at a discount. Actual transactions ranged from a discount of 10 yuan/mt to a premium of 10 yuan/mt against the SMM average price. On Monday, selling sentiment was relatively strong in the central China market, and as futures absolute prices pulled back, central China premiums and discounts strengthened. However, with the off-season arrival and weakening demand, downstream enterprises' purchase willingness declined, and they still mainly made just-in-time procurement. With large volumes of goods being sold in the market and prices continuing to trend lower, the actual transaction price dropped from a premium of 30 yuan/mt against the central China price before the opening to parity with the central China price.

Recycled Aluminum Raw Materials: On Monday, the spot aluminum price fell compared to the previous trading day, with SMM A00 spot closing at 21,710 yuan/mt, and the aluminum scrap market followed suit. Some scrap utilization enterprises reported high inventories of wrought aluminum alloy scrap collected during the peak season, lacking sufficient orders on hand to offset raw material inventory, thus slowing down the procurement pace for related scrap. Additionally, environmental protection-driven production restrictions in Chongqing affected the operating rate of alloy enterprises, leading to a slight decrease in downstream demand for aluminum scrap. The imported aluminum scrap market saw tight supply, with traders maintaining low inventory levels. However, a narrow range of aluminum price adjustments mid-week led to a decline in aluminum scrap prices, prompting some suppliers to hold prices firm and limit sales. Downstream alloy enterprises also faced tight supplies of recycled aluminum raw materials. On Monday, baled UBC was collectively quoted at 16,250-16,750 yuan/mt (excluding tax), while shredded aluminum tense scrap (priced based on aluminum content) was quoted at 18,000-18,550 yuan/mt (excluding 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 decreased by 100-300 yuan/mt MoM. In terms of the price difference between A00 aluminum and shredded aluminum tense scrap, it closed at 1,864 yuan/mt on December 15, while the price difference for bare bright aluminum wire in Jiangsu was 881.9 yuan/mt.

Secondary Aluminum Alloy: In the spot market, on Monday, the SMM A00 aluminum spot price dropped significantly by 340 yuan/mt to 21,710 yuan/mt, and the ADC12 price decreased by 150 yuan/mt to 21,600 yuan/mt. Affected by the significant retreat in aluminum prices, the secondary aluminum market generally declined. However, against the backdrop of a tight supply of raw materials, the sentiment among traders to hold back from selling intensified, limiting the decline in aluminum scrap prices. High costs supported relatively resilient secondary aluminum prices, with mainstream quotations decreasing by 100-200 yuan/mt. The sharp fluctuations in aluminum prices in the short term exacerbated the wait-and-see sentiment among downstream players, making die-casting enterprises cautious about their procurement pace, resulting in moderate market transactions. Although there is a phased surge in demand from end-users at year-end, overall demand has shown signs of weakening. Currently, the secondary aluminum alloy market is experiencing intense tug-of-war between longs and shorts: tight aluminum scrap supply provides a floor for prices, while weakening demand and fluctuating aluminum prices suppress procurement sentiment. The decline in industry operating rates has pushed the market into a tight balance. It is expected that the ADC12 price will continue to fluctuate at highs in the short term, and close attention should be paid to the trend of aluminum prices, aluminum scrap supply, and changes in downstream orders.

Comprehensive Outlook: Although the macro perspective is favorable, it has not been able to offset the suppression from fundamentals and capital flows in the short term. Domestically, the Central Economic Work Conference confirmed that an active fiscal policy will continue next year, emphasizing the sustained development of artificial intelligence and new-type energy systems. This injects a strong impetus into the medium and long-term demand for aluminum in high-end manufacturing and green energy sectors. The consumption promotion plan issued by MIIT and five other departments also points to a positive policy environment. Overseas, the market is currently awaiting the US non-farm payrolls report and retail sales data scheduled for release on Tuesday to gain further insight into the US Fed's policy path. According to the CME FedWatch Tool, the market currently sees a 78% probability of an interest rate cut in January 2026. Supply side, domestic operating aluminum capacity currently stands at 44.39 million mt, with operating capacity increasing slightly amid high profits, though overall changes remain relatively small. Demand side, although December falls within the traditional consumption off-season, consumption in sectors such as automobiles, power, and electronics has shown strong resilience without exhibiting a more-than-seasonal weakening, and the proportion of liquid aluminum also remains high; delayed shipments of aluminum ingots from Xinjiang coupled with resilient consumption of aluminum semis have temporarily prevented social inventory of aluminum ingots from entering a phase of sustained inventory buildup. Cost side, alumina prices continue to decline, while auxiliary material prices remain generally stable, leading to weakened cost support. Overall, aluminum market supply is increasing slightly, demand performance is weak, cost support is weakening, and coupled with the realization of interest rate cut expectations triggering profit-taking by funds, SMM expects aluminum prices to maintain a high level with a slight pullback in the short term.

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