Macro Tailwinds and Weak Fundamentals Compete, Aluminum Prices Expected to Hover at Highs [SMM Aluminum Morning Meeting Minutes]

SMM Morning Meeting Minutes for 12.26

Futures:During the night session on December 25, the SHFE aluminum 2602 contract generally fluctuated at highs after opening higher, pulling back and then rebounding slightly towards the close. It opened at 22,220 yuan/mt, hit a high of 22,395 yuan/mt and a low of 22,220 yuan/mt, and closed at 22,305 yuan/mt, up 0.13%. Trading volume increased by 15,823 lots to 105,000 lots, and open interest increased by 2,980 lots to 293,000 lots. Technically, the MA system showed a bullish alignment (MA5: 22,265 > MA10: 22,114.5 > MA20: 22,090 > MA60: 21,581.75), and the medium and long-term upward trend remained intact.

Macro Front:US President Trump stated that those who disagree with his views will not be appointed as Fed Chairman, and he expects the new Fed Chairman to promote interest rate cuts against a backdrop of stable market operations. Affected by the uncertainty surrounding Trump's term and rising expectations for US Fed interest rate cuts, the appeal of the US dollar weakened, leading to a softer exchange rate, which in turn provided support for base metal prices. (Bullish ★)

Fundamentals:Inventory side, according to SMM statistics, inventory of primary aluminum ingots in major domestic consumption areas recorded 617,000 mt on Thursday, an increase of 17,000 mt from Monday and up 39,000 mt WoW. Meanwhile, combined inventory of aluminum billets in two regions remained flat compared to the previous period, with inventory in Guangdong decreasing by 1,000 mt and inventory in Wuxi increasing by 1,000 mt.

Primary Aluminum Market:In the early session, the SHFE aluminum 2601 contract fluctuated upward, but the overall price center edged down slightly compared to the previous day. Buying sentiment in the east China market was weak, with some enterprises suspending quotations and sales. The mainstream transactions were mainly at a discount of 10 yuan/mt to parity against the SMM average price. Approaching year-end, both selling and purchasing sentiment continued to weaken. The selling sentiment index in the east China market on Thursday was 2.33, down 0.05 WoW, while the purchasing sentiment index was 2.35, up 0.01 WoW. The SMM A00 aluminum price was quoted at 21,980 yuan/mt, down 50 yuan/mt from the previous trading day, at a discount of 170 yuan/mt against the 2601 contract, unchanged from the previous day. In the central China market, selling continued to weaken, with holders inclined to hold prices firm and sell after premiums and discounts rebounded. Environmental protection-driven production restrictions in central China relaxed somewhat, leading to small purchases by downstream processing enterprises and a slight rebound in buying sentiment. However, logistics were constrained by environmental protection measures, resulting in low trading volume. Actual transaction prices eventually ranged from a discount of 10 yuan/mt to a premium of 20 yuan/mt against the central China price. The selling sentiment index in the central China market on Thursday was 2.75, down 0.02 WoW, while the purchasing sentiment index was 2.29, up 0.04 WoW. The SMM central China aluminum price closed at 21,820 yuan/mt, down 50 yuan/mt from the previous trading day, at a discount of 330 yuan/mt against the 2601 contract, unchanged from the previous day. The price spread between Henan and Shanghai was -160 yuan/mt, also remaining stable.

Recycled Aluminum Raw Materials: Spot primary aluminum dropped slightly on Thursday from the previous trading day, with the SMM A00 spot price closing at 21,980 yuan/mt. The aluminum scrap market remained generally stable. 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 stocks, thus temporarily slowing down the procurement pace for related scrap. Additionally, repeated environmental protection-driven production restrictions in Chongqing slightly weakened aluminum scrap demand from downstream sectors. Secondary aluminum alloy scrap utilization enterprises indicated that they are about to begin Chinese New Year stockpiling and are currently conducting concentrated procurement of aluminum scrap raw materials, thereby accelerating the procurement pace for aluminum tense scrap. As 2026 approaches, the implementation of resource recycling policies still faces multiple obstacles, with issues such as natural persons and invoice issuance caps remaining difficult to resolve. Some recycling enterprises have already chosen to pass on the additional tax burden to the aluminum scrap supply side, posing a risk of downward pressure on the bottom of aluminum scrap prices. On Thursday, baled UBC was quoted in a concentrated range of 16,450-16,950 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was quoted in a concentrated range of 18,300-18,800 yuan/mt (ex-tax). Prices for baled UBC, shredded aluminum tense scrap, and bare bright aluminum wire remained flat on Thursday. Domestic aluminum scrap prices are expected to hover at highs around the New Year holiday, but caution is warranted against the risk of a pullback from elevated levels. On the supply side, the issue of tax burden transfer further affects the market supply structure. Demand side, stockpiling demand from secondary aluminum alloy enterprises for the Chinese New Year will continue to support procurement of aluminum tense scrap. However, signs of slowing demand from downstream die-casting enterprises are becoming increasingly evident, coupled with a wait-and-see sentiment brought by aluminum price fluctuations, leading to a decline in overall demand support for prices. Policy-wise, uncertainties from repeated environmental protection-driven production restrictions in central China and Chongqing will continue to suppress local demand in the short term. In terms of price trends, the center for shredded aluminum tense scrap (priced based on aluminum content) is expected to maintain within the range of 18,200-18,700 yuan/mt (ex-tax). Short-term focus should be on signals of easing environmental protection-driven production restriction policies, changes in procurement pace of downstream enterprises, and the impact of tax burden transfer on price floors.

Secondary Aluminum Alloy: Futures side, the most-traded cast aluminum alloy contract 2602 opened at 21,475 yuan/mt on Thursday. After opening, the price first dipped to a low of 21,135 yuan/mt, then fluctuated upward. The pace of increase accelerated after 10 a.m., and the price surged to a high of 21,480 yuan/mt in the afternoon before pulling back slightly towards the close, eventually settling at 21,345 yuan/mt. This represented a decrease of 135 yuan/mt, or 0.63%, from the previous trading day. The futures market was dominated by bulls reducing positions. In the spot market on Thursday, the SMM A00 aluminum price was reported at 21,980 yuan/mt, down 50 yuan/mt from the previous day; the ADC12 price held steady at 21,950 yuan/mt. While the aluminum price experienced a slight correction, secondary aluminum prices remained firm. Currently, tight raw material supply, combined with persistently high aluminum and copper prices, has led to aluminum scrap, especially aluminum tense scrap, following price increases quickly but declines limitedly. Enterprise raw material inventories are at low levels. Demand side weakened, with sluggish market transactions; supply side, affected by environmental protection-related controls, cost losses, and other factors, still faces contraction pressure. Overall, cost support and supply tightening jointly solidify the price bottom, but slowing demand and aluminum prices fluctuating at highs suppressed downstream purchasing enthusiasm. ADC12 prices are expected to continue hovering at highs in the short term. On the import side, current overseas ADC12 offers hovered in the range of $2,630–2,650/mt. This Thursday, the yuan broke through the 7.0 mark against the US dollar, and the stronger yuan further improved the immediate import profitability, theoretically opening the import window.

Aluminum Market Summary:Overall, macro sentiment is currently favorable, but the short-term fundamentals show a weakening trend. Operating aluminum capacity increased, downstream operating rates declined, and social inventories of aluminum ingots built up. Fundamental performance exerts pressure on the top side of aluminum prices. In the short term, macro tailwinds and fundamental weakness are contending, and aluminum prices are expected to maintain high fluctuations.

[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.]