Macro Positive Support Combined with Supply Disruptions, Multiple Positive Factors Keep Aluminum Prices Fluctuating at Highs [SMM Aluminum Morning Meeting Minutes]

12.18 SMM Morning Meeting Minutes

Futures:During the night session on December 17, the most-traded SHFE aluminum 2602 contract opened at 21,970 yuan/mt, reached a high of 22,100 yuan/mt, hit a low of 21,960 yuan/mt, and finally closed at 22,065 yuan/mt, up 150 yuan/mt or 0.68% from the previous close. Technically, the MA moving averages showed a pullback after a bullish alignment (MA5: 21,903.00 < MA10: 21,952.50 < MA20: 22,037.00 > MA40: 21,844.75), while the MACD 4-hour candlestick level continued to show a green histogram (DIFF: 21.82, DEA: 45.07). In terms of open interest, the night session open interest was approximately 298,000 lots, an increase of 3,732 lots from the daytime session. LME aluminum opened at $2,883/mt, reached a high of $2,908/mt, hit a low of $2,876/mt, and finally closed at $2,906/mt, up 0.82% from the previous day. Trading volume was 16,700 lots, down 5,440 lots, while open interest was 670,000 lots, down 12,045 lots.

Macro Front:Kevin Hassett, Director of the White House National Economic Council, recently stated that the US still has significant room for interest rate cuts. (Bullish ★) The National Development and Reform Commission (NDRC) and five other ministries issued a notice requiring new coal development and utilization projects, as well as eligible existing projects, to push for the highest possible level of clean and efficient utilization; outdated capacity and outdated processes will be resolutely phased out in accordance with laws and regulations. (Bullish ★) The UK's November inflation rate fell to an eight-month low, with the slowdown exceeding expectations, paving the way for the Bank of England to cut interest rates on Thursday. The European Central Bank is also set to announce its interest rate decision on the same day, and is expected to keep rates unchanged. (Bullish ★)

Fundamentals:Inventory side, aluminum ingot inventories in major domestic consumption areas recorded 578,000 mt this Thursday, a destocking of 6,000 mt from last Thursday and a destocking of 18,000 mt from this Monday. According to a South32 official website announcement on December 16, the Mozal aluminum smelter is expected to enter a maintenance period around March 15, 2026, primarily because a new power supply agreement has not yet been reached. Reportedly, parties remain at an impasse over suitable electricity prices, and persistent drought has also affected the power supply from the electricity company. The Mozal smelter's production guidance for the 2026 fiscal year ending March 2026 remains unchanged at 240,000 mt (South32's share, equivalent to approximately 377,000 mt for the Mozal smelter). According to data from the National Bureau of Statistics (NBS), China's industrial robot production from January to October reached 602,700 units/sets, up 28.8% YoY; cumulative sales were 652,700 units/sets, up 42.51% YoY, with both production and sales exceeding the full-year total from last year. On export data, China's cumulative industrial robot exports from January to October were 50,964 units, up 88.32% YoY.

Primary aluminum market: The SHFE aluminum 2601 contract's trading center moved up in the morning session. The absolute price rose, coupled with year-end shipments for cash collection, leading suppliers to concentrate on selling. Supply in the spot market was relatively ample, and sellers lowered their quotations, with offers at discounts of 30 to 10 yuan/mt against the SMM average price. Purchasers bought cautiously, with large transactions mostly concentrated at discounts of 20 to 10 yuan/mt. The east China market's selling sentiment index was 2.63 on Wednesday this week, down 0.2 WoW; the buying sentiment index was 2.51, down 0.07 WoW. SMM A00 aluminum was quoted at 21,750 yuan/mt, up 120 yuan/mt from the previous trading day, at a discount of 110 yuan/mt against the 2601 contract, down 10 yuan/mt from the previous trading day. Trading in the central China market was relatively sluggish on Wednesday this week. Downstream processing enterprises had weak purchase willingness, leading to lukewarm purchasing by traders. Suppliers dumped large volumes of goods, but market trading volume was low, and quotations continued to decline. The actual transaction price in the market fell from a premium of 10 yuan/mt against the central China price before the opening to a discount of 20 yuan/mt against the central China price. The central China market's selling sentiment index was 2.74 on Wednesday this week, up 0.02 WoW; the buying sentiment index was 2.69, down 0.02 WoW. SMM central China closed at 21,670 yuan/mt, up 110 yuan/mt from the previous trading day, at a discount of 190 yuan/mt against the 2601 contract, down 20 yuan/mt from the previous trading day. The Henan-Shanghai price spread was -80 yuan/mt, down 10 yuan/mt from the previous trading day.

Recycled aluminum raw materials: Spot primary aluminum prices edged down on Wednesday this week compared to the previous trading day. SMM A00 spot closed at 21,750 yuan/mt, and the aluminum scrap market followed with slight increases. Some scrap utilization enterprises reported high inventories of wrought aluminum alloy scrap collected during the peak season, lacking sufficient orders on hand to hedge against raw material inventories, thus temporarily slowing the procurement pace for related scrap. Additionally, environmental protection-driven production restrictions in Chongqing affected the operating rates of alloy enterprises, leading to a slight weakening in downstream demand for aluminum scrap. Imported aluminum scrap market faced tight raw materials, with traders mostly maintaining low inventories. However, the mid-week narrow correction in aluminum prices led to a decline in aluminum scrap prices. Some aluminum scrap suppliers held prices firm and were reluctant to sell, while downstream alloy enterprises also faced tight supplies of recycled aluminum raw materials. On Wednesday this week, baled UBC aluminum scrap was centrally quoted at 16,250-16,750 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was centrally quoted at 18,000-18,550 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 increased by 50-150 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 1,914 yuan/mt on December 17, and the price difference between A00 aluminum and bare bright aluminum wire in Jiangsu was 868.1 yuan/mt. The aluminum scrap market is expected to hover at highs this week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) at 18,200-18,900 yuan/mt (ex-tax). The tight supply situation is difficult to change, with constraints on imports and recycling persisting, providing a floor for prices. On the demand side, the year-end push for targets in the secondary aluminum sector and the dampening effect of high prices are intertwined, causing scrap utilization enterprises in extrusion and rolling to be cautious about purchasing due to high costs. The price trend of primary aluminum serves as the core guidance, coupled with the impact of environmental protection-driven production restrictions and transportation constraints in central China, leading to cautious market sentiment. Overall, the tug-of-war between sellers and buyers continues, requiring close monitoring of fluctuations in primary aluminum prices, environmental protection policies, and downstream procurement pace, while remaining vigilant about the risk of a correction from high levels.

Secondary Aluminum Alloy:Futures side, on Wednesday, the most-traded cast aluminum alloy contract 2602 opened at 20,945 yuan/mt. During the day, futures fluctuated at highs, rising again above 21,100 yuan/mt, hitting a high of 21,135 yuan/mt and a low of 20,940 yuan/mt, finally closing at 21,045 yuan/mt, up 120 yuan/mt or 0.57% from the previous trading day. The market was primarily characterized by bears reducing positions. In the spot market on Wednesday, the SMM A00 aluminum price rebounded by 120 yuan/mt to 21,750 yuan/mt, and the ADC12 price also increased by 50 yuan/mt to 21,650 yuan/mt. The rebound in aluminum prices led to a widespread follow-up increase of about 100 yuan/mt in the secondary aluminum market, while some enterprises chose to hold prices steady and adopt a wait-and-see approach. Currently, raw material supply is generally tight. Aluminum scrap traders quickly raised prices following the aluminum price rebound, prompting secondary aluminum plants to adjust prices upward due to cost pressures. However, increased aluminum price volatility has intensified the wait-and-see sentiment downstream, while demand shows signs of marginal slowdown, resulting in overall sluggish market transactions. Overall, cost side support underpins the price bottom, but weakening demand and fluctuating aluminum prices jointly suppress procurement enthusiasm. ADC12 prices are expected to continue fluctuating at high levels in the short term.

Aluminum Market Summary:From a macro perspective, US non-farm payrolls increased by 64,000 in November, slightly better than market expectations, but the unemployment rate unexpectedly climbed to a four-year high. This mixed employment data is unlikely to significantly alter the US Fed's considerations regarding interest rate cuts, and uncertainty in the overseas macro environment persists. In terms of supply, current domestic operating aluminum capacity stands at 44.39 million mt. Although high industry profits stimulate a slight increase in operating capacity, the overall scale change is relatively small, with no significant incremental supply appearing. On the demand side, although December is the traditional consumption off-season, consumption in sectors such as automobiles, power, and electronics remains resilient without showing weaker-than-seasonal performance, and the proportion of liquid aluminum direct supply also remains high. Cost side, alumina prices continue to decline, auxiliary material prices are mainly stable, and the marginal cost of aluminum production is continuously decreasing, significantly weakening the cost support for aluminum prices. Overall, overseas production reduction risks and the domestic capacity ceiling will support aluminum prices, aluminum ingot inventory has shifted to destocking, and domestic demand resilience persists. SMM expects aluminum prices to hover at highs 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 it to replace independent judgment. Any decisions made by clients are unrelated to SMM.]