Fundamentals Weaken, Aluminum Prices Face Significant Resistance [SMM Aluminum Morning Meeting Minutes]

SMM Morning Meeting Minutes for 12.29

Futures:Technically, the SHFE aluminum 2602 contract fluctuated and rose during the night session on December 26, closing at 22,520 yuan/mt, positioned between multiple moving averages. The MA5 (22,519) and MA10 (22,510) were converging, with the price holding above the short-term moving averages, but facing slight resistance from the MA60 (22,522) above. In the MACD indicator, the DIF (-0.8217) remained below the zero line, but the MACD histogram (3.9221) turned positive and continued to rise, indicating weakening downward momentum and signs of short-term strengthening. The core trading range for SHFE aluminum was suggested at 22,100-22,700.

Macro Front:The National Financial Work Conference was held in Beijing. The meeting noted that in 2026, a more proactive fiscal policy will continue to be implemented; the scale of fiscal expenditure will be expanded to ensure necessary spending intensity; and the mix of government bond instruments will be optimized to better leverage bond efficiency. The meeting outlined six key tasks for 2026 fiscal work, including adhering to domestic demand-led growth, vigorously boosting consumption, increasing investment in key areas such as new quality productive forces and comprehensive human development; accelerating the cultivation and expansion of new growth drivers, further increasing fiscal investment in science and technology; and further strengthening basic safeguards and safety nets to promote employment and income growth for residents. (Bullish ★) The Ministry of Finance stated that next year it will expand the scale of fiscal expenditure, deeply implement special actions to boost consumption; continue to allocate funds to support trade-in programs for consumer goods; and promote employment and income growth for residents. (Bullish ★)

Fundamentals:Supply side, new aluminum projects in China and Indonesia continued to ramp up production, with daily average production continuing to increase; additionally, a new aluminum project in Inner Mongolia announced a successful power-on on December 20. In the near future, daily average aluminum production is expected to continue growing. Demand side, high prices suppressed downstream cargo pick-up demand, coupled with environmental protection-driven production restrictions affecting downstream processing plants in central China, leading to a decline in operating rates. The proportion of liquid aluminum decreased by 0.61 percentage points WoW, downstream weekly operating rates remained in the doldrums, and operating rates in sectors including aluminum extrusion declined MoM. Inventory side, according to SMM statistics, inventory of aluminum ingots in major domestic consumption areas recorded 645,000 mt this Monday, an increase of 28,000 mt compared to last Thursday.

Primary Aluminum Market:In the morning session, the SHFE aluminum 2601 contract showed a pattern of rising first then falling, with the overall price center shifting higher compared to yesterday. Trading sentiment in the east China market recovered WoW compared to yesterday, but remained constrained by factors such as weakening year-end demand and enterprise settlement and account closing, keeping overall trading activity at a low level. Mainstream transaction prices were mainly concentrated in the range of a 20-10 yuan/mt discount to the SMM average price. Current high SHFE aluminum prices, coupled with a lack of support from actual year-end demand, have pushed spot discounts to their lowest level this year, prompting some downstream enterprises to conduct moderate restocking. Last Friday, the selling sentiment index in the east China market was 2.22, down 0.11 WoW; the purchasing sentiment index was 2.39, up 0.04 WoW. SMM A00 aluminum was quoted at 22,020 yuan/mt, up 40 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. Trading in the central China market remained weak, with environmental protection-driven production restrictions continuing. Downstream enterprises mainly consumed raw material inventories, showing weak procurement sentiment. Some traders bought the dip, but low premiums and discounts, coupled with unrecovered logistics, led to low willingness to sell among holders, resulting in low actual trading volume. The final transaction prices ranged from a premium of 10 yuan to a discount of 20 yuan against the central China price. Last Friday, the selling sentiment index in the central China market was 2.71, down 0.04 WoW; the purchasing sentiment index was 1.99, down 0.3 WoW. SMM central China aluminum price closed at 21,850 yuan/mt, up 30 yuan/mt from the previous trading day, at a discount of 360 yuan/mt against the 2601 contract, down 30 yuan/mt from the previous trading day; the Henan-Shanghai price spread was -170 yuan/mt, down 10 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials:Last Friday, spot primary aluminum prices dropped slightly from the previous trading day, with SMM A00 spot aluminum closing at 22,020 yuan/mt, while the aluminum scrap market overall held steady. 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. Additionally, repeated environmental protection-driven production restrictions in Chongqing led to a slight weakening in aluminum scrap demand from downstream. Secondary aluminum alloy scrap utilization enterprises indicated that they are expected to begin Chinese New Year stockpiling soon and are currently conducting concentrated procurement of aluminum scrap raw materials, thus accelerating the procurement pace for aluminum tense scrap-based materials. As 2026 approaches, the implementation of resource recycling policies still faces multiple obstacles, with issues such as natural persons and invoice caps remaining difficult to resolve. Some recycling enterprises have already chosen to pass on additional tax burdens to the aluminum scrap supply side, posing a risk of downward pressure on aluminum scrap price bottoms. Last Friday, baled UBC aluminum scrap was quoted in a concentrated range of 16,500-17,000 yuan/mt (tax excluded), while shredded aluminum tense scrap (priced based on aluminum content) was quoted in a concentrated range of 18,300-18,800 yuan/mt (tax excluded). Prices for shredded aluminum tense scrap and bare bright aluminum wire remained flat last Friday. Domestic aluminum scrap prices are expected to hover at highs around the New Year holiday, while also needing to guard against the risk of high-level corrections. Supply side, the issue of tax burden transfer further affects market supply structure. Demand side, Chinese New Year stocking demand from secondary aluminum alloy enterprises will continue to support procurement of aluminum tense scrap-based materials, but signs of slowing demand from downstream die-casting enterprises are gradually becoming evident, coupled with wait-and-see sentiment brought by aluminum price fluctuations, overall demand support for prices has somewhat weakened. Policy side, uncertainty from repeated environmental protection-driven production restrictions in central China and Chongqing will continue to suppress local demand in the short term. Price-wise, the price center for shredded aluminum tense scrap (priced based on aluminum content) is expected to hover in the range of 18,200-18,700 yuan/mt (tax excluded). In the short term, key factors to monitor include signals of the easing of the environmental protection-driven production restriction policy, changes in the procurement pace of downstream enterprises, and the impact of tax burden shifting on the price floor.

Secondary Aluminum Alloy:Futures: On Friday, the most-traded cast aluminum alloy futures contract (code 2602) opened at 21,495 yuan/mt. After opening, it initially dipped, hitting a low of 21,240 yuan/mt, then fluctuated and rebounded. In the afternoon, a rapid surge occurred, pushing the price to a high of 21,600 yuan/mt. It pulled back slightly towards the close, finally settling at 21,390 yuan/mt, up 45 yuan/mt or 0.21% from the previous trading day. The market was primarily characterized by short covering. Spot Market: On Friday, the SMM A00 aluminum price was quoted at 22,020 yuan/mt, up 40 yuan/mt from the previous day. The ADC12 price increased by 50 yuan/mt to 22,000 yuan/mt, returning to a level above 22,000 yuan/mt for the first time since May 2022. Currently, raw material supply remains tight, and aluminum and copper prices continue to fluctuate at highs, with copper prices approaching 100,000 yuan/mt. This has driven rapid price increases for aluminum scrap, especially aluminum tense scrap, leading to multiple intraday price increases for secondary aluminum alloys. On the demand side, signs of weakening have emerged, as downstream acceptance of high prices is limited and fear of high prices is intensifying, resulting in overall sluggish market transactions. Supply side, factors such as environmental protection-related controls, insufficient raw materials, or losses continue to exert pressure on capacity contraction. Overall, cost support and supply tightness jointly underpin the price floor. However, demand slowdown and aluminum prices fluctuating at highs constrain downstream purchase willingness. ADC12 prices are expected to continue fluctuating at highs in the short term. Imports: Current overseas ADC12 offers remain in the range of $2,630–$2,650/mt. With the rapid surge in domestic prices, coupled with a stronger Renminbi, the immediate import profit has widened again, theoretically opening the import arbitrage window.

Aluminum Market Summary:Overall, macro sentiment is currently favorable, but short-term fundamentals show a weakening trend. Operating aluminum capacity is increasing, while downstream operating rates are weakening, and social inventories of aluminum ingots are building up. These fundamental factors are exerting pressure on the top side of aluminum prices. In the short term, the interplay between macro tailwinds and fundamental weakness is expected to keep aluminum prices fluctuating at highs.

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