Expectations for US Fed Interest Rate Cuts Heat Up, SHFE Aluminum Maintains Fluctuating Trend [SMM Aluminum Morning Conference Minutes]

12.24 SMM Morning Meeting Minutes

Futures:In the night session on December 23, the SHFE aluminum 2602 contract opened at 22,290 yuan/mt, reached a high of 22,305 yuan/mt, a low of 22,055 yuan/mt, and closed at 22,160 yuan/mt, down 0.16%. Trading volume was 164,000 lots, and open interest was 292,000 lots. Technical analysis showed the MA system in a bullish alignment (MA5: 22,143 > MA10: 22,053.5 > MA20: 22,012.25 > MA60: 21,527.42), with the medium and long-term uptrend intact. LME aluminum opened at $2,943.5/mt, hit a high of $2,966/mt, a low of $2,926/mt, and finally closed at $2,941/mt. Trading volume was 15,800 lots, an increase of 710 lots, and open interest was 681,000 lots, up 739 lots.

Macro Front:Xi Jinping recently issued important instructions on the work of central state-owned enterprises. Xi emphasized that central SOEs should focus on their main responsibilities and businesses, continuously optimize the layout of the state-owned economy, and effectively enhance core functions and competitiveness. They should base their efforts on the real economy, strengthen breakthroughs in key core technologies, and promote the deep integration of technological innovation and industrial innovation. (Neutral) US Q3 GDP grew at its fastest pace in two years, reaching 4.3%, but the US consumer confidence index fell for the fifth consecutive month. Markets continued to bet on expectations for US Fed interest rate cuts next year, putting the US dollar under pressure and pushing it below the 98 level. (Bullish ★)

Fundamentals:Inventory side, according to SMM statistics, on December 23, the combined inventory of aluminum ingots in three domestic locations increased by 11,500 mt from the previous period, with Wuxi inventory up 6,000 mt and Gongyi inventory up 5,500 mt. Meanwhile, the combined inventory of aluminum billets in two locations increased by 500 mt from the previous period, with Guangdong inventory up 1,000 mt and Wuxi inventory down 500 mt.

Primary Aluminum Market:In the early session, the SHFE aluminum 2601 contract moved lower, with its price center down from the previous day. The drop in aluminum prices did not boost trading sentiment in the east China market. Offers were mainly at a discount of 20 yuan/mt to a premium of 10 yuan/mt against the SMM average price, with a discount of 10 yuan/mt being the most concentrated. Approaching year-end, both selling and purchase sentiment in the market were weak. The selling sentiment index in the east China market on Tuesday was 2.41, down 0.07 WoW; the purchase sentiment index was 2.38, down 0.17 WoW. The SMM A00 aluminum offer was 21,870 yuan/mt, down 60 yuan/mt from the previous trading day, at a discount of 170 yuan/mt against the 2601 contract, unchanged from the previous day. Sentiment in the central China market was relatively better, with downstream purchase willingness improving slightly, though selling sentiment dropped back slightly. Influenced by the falling aluminum prices, market offers weakened initially then stabilized, with final transaction prices ranging from a discount of 40 yuan/mt to parity against the central China price. On Tuesday, the central China market sentiment index for shipments was 2.75, down 0.02 WoW, while the purchasing sentiment index was 2.43, up 0.14 WoW. The SMM aluminum price in central China closed at 21,710 yuan/mt, down 60 yuan/mt from the previous trading day, at a discount of 330 yuan/mt against the 2601 contract, unchanged from the previous day. The Henan-Shanghai price spread stood at -160 yuan/mt, also remaining stable.

Recycled Aluminum Raw Materials:On Tuesday, spot primary aluminum prices dropped back slightly compared to the previous trading day, with the SMM A00 spot price closing at 21,870 yuan/mt. The overall aluminum scrap market saw minor adjustments. Some scrap utilization enterprises reported high inventories of wrought aluminum alloy scrap accumulated during the peak season, coupled with insufficient orders on hand to hedge against raw material stocks, leading to a temporary slowdown in procurement pace for related scrap materials. Additionally, recurring environmental protection-driven production restrictions in Chongqing slightly weakened aluminum scrap demand from downstream sectors. Secondary aluminum alloy scrap utilization enterprises indicated that as Chinese New Year stockpiling is expected to begin soon, they are currently conducting concentrated procurement of aluminum scrap raw materials, thus accelerating the procurement pace for aluminum tense scrap materials. On Tuesday, baled UBC scrap was centrally quoted at 16,350-16,850 yuan/mt (tax excluded), while shredded aluminum tense scrap (priced based on aluminum content) was centrally quoted at 18,100-18,600 yuan/mt (tax excluded). Baled UBC prices were down 50 yuan/mt WoW, while aluminum tense scrap prices in some regions such as Jiangxi, Guizhou, and Hunan remained stable on Tuesday. The aluminum scrap market is expected to continue hovering at highs this week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) projected at 18,000-18,500 yuan/mt (tax excluded). The tight supply situation for aluminum scrap is difficult to reverse in the short term, and shortages of imported raw materials are providing a floor for prices. As pre-Chinese New Year stockpiling is about to commence, concentrated raw material procurement by some scrap utilization enterprises will offer some support to scrap demand. However, recurring environmental protection-driven production restrictions in central and south-west China are keeping market participants' sentiment cautious. Overall, the tug-of-war between sellers and buyers in the aluminum scrap market is expected to persist next week. Close attention should be paid to fluctuations in primary aluminum prices, the implementation of environmental protection-driven 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:On the futures side, the most-traded cast aluminum alloy contract 2602 opened at 21,240 yuan/mt on Tuesday. After opening, it quickly dipped to a low of 21,105 yuan/mt, then fluctuated and rebounded to a high of 21,280 yuan/mt, finally closing at 21,265 yuan/mt, up 40 yuan/mt or 0.19% from the previous trading day. Bears mainly reduced their positions on the futures market. In the spot market on Tuesday, the SMM A00 aluminum price pulled back by 60 yuan/mt to 21,870 yuan/mt, while the ADC12 price held firm at 21,800 yuan/mt. Aluminum prices edged down slightly on Tuesday, but the secondary aluminum market generally remained stable. Current raw material supply is tightening, coupled with secondary aluminum enterprises entering the stockpiling phase, leading to rising aluminum scrap demand. Traders' sentiment to hold prices firm is evident, providing support to secondary aluminum costs. However, demand side marginally weakened, and overall market transactions performed sluggishly. In terms of supply, heavy pollution weather alerts were recently activated in many regions, leading some secondary aluminum enterprises to face production restrictions or shutdowns, resulting in a slight contraction in supply. Overall, cost support and supply tightening jointly solidify the price bottom, but demand slowdown and aluminum prices fluctuating at highs suppress downstream purchase willingness. ADC12 prices are expected to maintain a fluctuating trend at highs in the short term. Import side, current overseas ADC12 offers are at $2,630-2,650/mt. Since December, driven by cost push and regional policy adjustments, domestic spot quotes have followed the rise to 21,000-21,200 yuan/mt. Although the strengthening yuan and SHFE gains have led to a narrowing of the immediate import loss, the overall situation remains in an inverted range. Imports for December are expected to remain in the range of 70,000-80,000 mt, while the total import volume for the full year 2025 is expected to fall below 1 million mt, with a YoY decline of about 18%.

Aluminum Market Summary:Overall, on the macro front, domestic and overseas macro sentiment leans favorable, with market expectations for US Fed interest rate cuts strengthening, which is positive for base metal prices. From a fundamental perspective, the domestic fundamentals currently struggle to provide strong support for sustained aluminum price increases, as end-use demand is weak and the proportion of liquid aluminum subsequently declines. Overall, although fundamental driving forces are limited, the macro front both domestically and overseas remains optimistic, and the pattern of aluminum prices fluctuating at highs remains unchanged.

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