SHFE and LME Aluminum Prices Strengthen in Sync, Insufficient Fundamental Support Awaits Observation [SMM Aluminum Morning Meeting Minutes]

12.22 SMM Morning Meeting Summary

Futures: On the night of December 19, SHFE aluminum 2602 contract opened at 22,295 yuan/mt and closed at 22,245 yuan/mt, up 0.27%, with a high of 22,365 yuan/mt and a low of 22,200 yuan/mt. Trading volume was 111,000 lots, and open interest was 321,000 lots, showing a "bottom out + steady volume and open interest" pattern, holding up well. LME aluminum opened at $2,917.5/mt, reached a high of $2,960/mt, and a low of $2,909.5/mt, closing at $2,955.5/mt, up 1.32%. Trading volume was 21,600 lots, an increase of 4,742 lots, and open interest was 683,000 lots, an increase of 8,942 lots.

Macro Front: The expanded meeting of the Ministry of Commerce Party Leadership Group was held in Beijing on December 20. The meeting emphasized boosting consumption, expanding the supply of high-quality goods and services, and releasing the potential of service consumption (Bullish ★). According to CME's "FedWatch": the probability of the US Fed cutting interest rates by 25 basis points in January next year is 21%, and the probability of maintaining the current rate is 79%. By March next year, the probability of a cumulative 25-basis-point cut is 47.1%, the probability of no change is 43.4%, and the probability of a 50-basis-point cut is 9.5% (Bullish ★).

Fundamentals: In terms of inventory, according to SMM statistics, as of last Friday, the inventory of aluminum ingot in major domestic consumption areas was 600,000 mt, an increase of 22,000 mt from Thursday, and an increase of 4,000 mt WoW from Monday.

Primary Aluminum Market: In the morning session, SHFE aluminum 2601 contract fluctuated. The number of suppliers dumping inventory decreased, and downstream buying sentiment slightly recovered. Quotations were mainly at a discount of 20 yuan/mt against the SMM average price, with a concentration at a discount of 10 yuan/mt. Last Friday, the East China market's selling sentiment index was 2.43, down 0.04 WoW; the purchasing sentiment index was 2.48, up 0.07 WoW. SMM A00 aluminum was quoted at 21,820 yuan/mt, up 90 yuan/mt from the previous trading day, at a discount of 150 yuan/mt against the 2601 contract, down 10 yuan/mt from the previous trading day. In the Central China market last Friday, transaction sentiment continued to weaken, with aluminum prices retreating from highs. Downstream enterprises showed tepid buying sentiment, but some traders actively purchased to complete long-term contract deliveries, resulting in some transactions. Market quotations first weakened then recovered, with final actual transaction prices ranging from a discount of 10 yuan/mt to 40 yuan/mt against the Central China price. Last Friday, the Central China market's selling sentiment index was 2.79, unchanged WoW; the purchasing sentiment index was 2.66, down 0.01 WoW. SMM Central China closed at 21,690 yuan/mt, up 70 yuan/mt from the previous trading day, at a discount of 280 yuan/mt against the 2601 contract, down 30 yuan/mt from the previous trading day. The price spread between Central China and Shanghai was -130 yuan/mt, down 20 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials: Spot primary aluminum prices fluctuated and rose last Friday compared to the previous trading day, with the SMM A00 spot price closing at 21,820 yuan/mt. The aluminum scrap market followed the increase collectively. 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 down the procurement pace for related scrap materials. Furthermore, repeated environmental protection-driven production restrictions in Chongqing have led to a slight weakening in downstream demand for aluminum scrap. Secondary aluminum alloy scrap utilization enterprises indicated that they are about to begin stockpiling for the Chinese New Year and are currently conducting concentrated procurement of aluminum scrap raw materials, thereby accelerating the procurement pace for aluminum tense scrap-based materials. Last Friday, baled UBC was centrally quoted at 16,300-16,800 yuan/mt (tax excluded), and shredded aluminum tense scrap (priced based on aluminum content) was centrally quoted at 18,100-18,650 yuan/mt (tax excluded). 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 remained stable or were slightly raised by 25-50 yuan/mt MoM. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and shredded aluminum tense scrap closed at 1,916 yuan/mt on December 19, and the price difference between A00 aluminum and bare bright aluminum wire in Jiangsu was 884.4 yuan/mt. The aluminum scrap market is expected to hover at highs next week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) forecasted at 18,000-18,500 yuan/mt (tax excluded). The tight supply pattern for aluminum scrap is difficult to change in the short term, and shortages of imported raw materials are providing a floor for prices. As stockpiling ahead of the Chinese New Year is about to begin, concentrated raw material procurement by some scrap utilization enterprises will provide some support for scrap demand. However, repeated environmental protection-driven production restrictions in central and south-west China are causing market participants to maintain a cautious sentiment. Overall, the tug-of-war between sellers and buyers in the aluminum scrap market is expected to continue next week. It is crucial to closely track fluctuations in primary aluminum prices, the implementation of environmental protection production restrictions, and changes in the procurement pace of downstream enterprises, while remaining vigilant against the risk of a pullback from highs.

Secondary Aluminum Alloy: In the futures market last Friday, the most-traded cast aluminum alloy contract 2602 opened at 21,080 yuan/mt. The futures price fluctuated and rose during the day, touching a high of 21,285 yuan/mt in the afternoon, and finally closed at 21,235 yuan/mt, up 125 yuan/mt or 0.59% from the previous trading day. The increase was primarily driven by bulls adding positions. In the spot market last Friday, the SMM A00 aluminum price rose slightly by 90 yuan/mt to 21,820 yuan/mt, while the ADC12 price was raised by 50 yuan/mt to 21,700 yuan/mt. Following the rise in aluminum prices, the secondary aluminum market actively adjusted its prices. Currently, raw material supply is relatively tight. Coupled with secondary aluminum enterprises entering their stockpiling cycle, demand for aluminum scrap has increased, and traders show a strong willingness to hold prices firm, providing solid support for secondary aluminum costs. However, increased volatility in aluminum prices has intensified the wait-and-see sentiment among downstream users, leading to marginally weaker demand and sluggish market transactions. Overall, while cost support underpins a solid price floor, slowing demand combined with fluctuating aluminum prices jointly suppresses purchase willingness. The ADC12 price is expected to continue fluctuating at highs in the short term. On the import side, current overseas ADC12 offers remained stable at $2,620–2,640/mt. As domestic prices increased actively, the immediate import loss narrowed to around 100 yuan/mt.

Aluminum Market Summary: Overall, from a macro perspective, future market attention should focus on the pace of interest rate hikes in Japan and its impact on the downward trend of aluminum prices. Domestically, fundamentals currently lack strong support for sustained aluminum price increases, with weak end-use demand leading to a decline in the proportion of liquid aluminum. Subsequent changes in operating rates need close monitoring. Downstream processing enterprises maintained low sentiment for spot purchases, and spot premiums continued to widen. With improved shipments from Xinjiang and rising in-transit inventory, social inventory was expected to accumulate this week, putting pressure on price support 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.]

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