Internal and External Observations [SMM Aluminum Morning Meeting Minutes]

SMM Morning Meeting Minutes 12.23

Futures:On the night session of December 22, the SHFE aluminum 2602 contract fluctuated rangebound. It opened at 22,115 yuan/mt, hit a high of 22,205 yuan/mt and a low of 22,115 yuan/mt, and closed at 22,135 yuan/mt, down 0.38%. Trading volume was 73,306 lots, and open interest decreased slightly by 2,842 lots. The 5-day (around 22,180 yuan/mt), 10-day (around 22,030 yuan/mt), and 20-day moving averages formed a bullish alignment, and the medium and long-term upward trend remained intact. LME aluminum opened at $2,955/mt, reached a high of $2,968/mt and a low of $2,938/mt, and finally closed at $2,941/mt, down 0.49%. Trading volume was 15,000 lots, down 6,526 lots, and open interest was 680,000 lots, down 3,218 lots.

Macro Front:On December 22, Premier Li Qiang chaired a meeting of the State Council's leading group for drafting the outline of the 15th Five-Year Plan. Li Qiang noted the need to plan a number of major projects, major programs, and major platforms that can drive the overall situation, which are expected to accumulate new momentum and foster competitiveness for future development while also supporting the current expansion of domestic demand and stabilizing economic operations. (Bullish★) US Fed Governor Milan stated that due to the US government shutdown, last week's inflation data contained some anomalies, and the full-year CPI had a severe upward bias; recent data should prompt a shift toward a more dovish stance; he does not foresee an economic recession in the US in the near term, but without policy adjustments, the US faces increasing risks of an economic downturn. (Bullish★)

Fundamentals:Inventory side, according to SMM statistics, the combined aluminum ingot inventory across three major domestic regions stood at 438,000 mt on December 22, up 17,500 mt from the previous period; while the combined aluminum billet inventory in two regions was 75,500 mt, up 4,500 mt from the previous period.

Primary Aluminum Market:Spot trading in east China remained sluggish, with downstream buyers mainly making just-in-time procurement. Actual transactions were at discounts of around 30 yuan/mt to parity against the SMM average price. Overall buying sentiment in the central China market continued to weaken. As aluminum prices rose and disruptions to shipments from Xinjiang improved, a large volume of concentrated arrivals occurred this week. Additionally, environmental protection-driven production restrictions affected purchasing and operations at downstream processing enterprises, leading to a significant decline in buying sentiment on Monday. Premiums and discounts continued to trend lower, with holders showing weak willingness to hold prices firm. Severe price involution was observed amid substantial selling. Final actual transaction prices ranged from a discount of 20 yuan/mt to a discount of 60 yuan/mt against the central China price.

Recycled Aluminum Raw Materials:This Monday, spot primary aluminum prices continued to rise compared to the previous trading day, with the SMM A00 spot price closing at 21,930 yuan/mt, and the aluminum scrap market followed the upward trend collectively. 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 have been recurring, leading to a slight decrease in downstream aluminum scrap demand. Scrap utilization enterprises producing secondary aluminum alloys stated that they are about to start stockpiling for the Chinese New Year and are currently concentrating on procuring aluminum scrap raw materials, thereby accelerating the procurement pace for aluminum tense scrap. On Monday, baled UBC was concentratedly quoted at 16,400-16,900 yuan/mt (excluding tax), while shredded aluminum tense scrap (priced based on aluminum content) was concentratedly quoted at 18,100-18,600 yuan/mt (excluding tax). Baled UBC, clean tapping aluminum wire, mixed aluminum extrusion scrap free of paint, and prices rose by 100 yuan/mt MoM. In some regions such as Jiangxi, Guizhou, and Hunan, aluminum tense scrap prices remained stable on Monday. It is expected that the aluminum scrap market will continue to fluctuate at highs this week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) at 18,000-18,500 yuan/mt (excluding tax). The tight supply situation for aluminum scrap is unlikely to change in the short term, and the shortage of imported raw materials provides a price floor. Stockpiling for the Chinese New Year is about to begin, and the concentrated raw material procurement by some scrap utilization enterprises will provide some support for scrap demand. However, environmental protection-driven production restrictions in central and south-west China have been recurring, and market participants remain cautious. Overall, the tug-of-war between sellers and buyers in the aluminum scrap market will continue next week, and it is necessary to closely monitor fluctuations in primary aluminum prices, the implementation of environmental protection-driven production restrictions, and changes in the procurement pace of downstream enterprises, while being vigilant against the risk of a pullback from highs.

Secondary Aluminum Alloy: Futures, on Monday, the most-traded cast aluminum alloy 2602 futures contract opened at 21,300 yuan/mt, with the futures hovering at highs during the day, reaching a high of 21,395 yuan/mt and a low of 21,205 yuan/mt, finally closing at 21,290 yuan/mt, up 55 yuan/mt or 0.26% from the previous trading day. Bears mainly reduced their positions. In the spot market on Monday, SMM A00 aluminum prices continued to rise by 110 yuan/mt to 21,930 yuan/mt, and ADC12 prices also increased by 100 yuan/mt to 21,800 yuan/mt. The continuous strengthening of aluminum prices has driven the secondary aluminum market to actively follow and adjust prices. Currently, raw material supply is becoming tighter, coupled with secondary aluminum enterprises entering the stockpiling phase, leading to an increase in aluminum scrap demand. Traders are holding prices firm, providing support for the cost of secondary aluminum. However, the demand side is marginally weakening, and overall market transactions are sluggish. In terms of supply, heavy pollution weather warnings have recently been issued in multiple areas, resulting in some secondary aluminum enterprises facing production restrictions or shutdowns, leading to a slight contraction in supply. Overall, cost support and supply tightening are jointly consolidating the price bottom, but the slowdown in demand and the fluctuating trend of aluminum prices at highs are suppressing downstream purchase willingness. It is expected that ADC12 prices will maintain a fluctuating trend at highs in the short term. In terms of imports, current overseas ADC12 quotes have risen slightly to $2,620–$2,650/mt. Due to active price increases in the domestic market, the immediate import loss has narrowed to around 100 yuan/mt.

Aluminum Market Summary:Overall, from a macro perspective, the pace of interest rate hikes in Japan and its potential impact on aluminum price declines warrant attention in the latter part of the market. 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 the operating rates of aluminum production need close monitoring. Downstream processing enterprises maintained low sentiment for spot cargo procurement, and spot premiums continued to widen. With improved shipments from Xinjiang and rising in-transit inventory, social inventory was expected to accumulate this week, exerting 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.]