National Subsidy Policy Funds Disbursed, Inventory Buildup Reality Limits Upside Potential for Aluminum Prices [SMM Aluminum Morning Meeting Minutes]

12.31 SMM Morning Conference Minutes

Futures:The night session closed at 22,615 yuan/mt, up 0.87%. The price was slightly below the MA5 (22,629) but remained above all key moving averages. The MA5 to MA60 (22,622.25) were highly convergent, indicating a strong consolidation pattern. The MACD lines were above the zero axis (DIF 0.9883, DEA 0.8756), with the histogram positive (0.2454), maintaining a bullish stance. The core trading range for SHFE aluminum is suggested at 22,400-22,800. LME aluminum's night session closed at $2,986.5/mt, up 1.22%. The price held above all short-term moving averages (MA5 2,985.50, MA60 2,985.35), with the moving average system providing support. The MACD lines turned positive near the zero axis (DIF 0.1560, DEA 0.1219), and the histogram was slightly positive (0.0681), showing a slight strengthening in short-term momentum. The core trading range for LME aluminum is suggested at 2,950-3,000.

Macro Front:The 2026 national subsidy plan was officially released. The National Development and Reform Commission (NDRC) and the Ministry of Finance issued the "Notice on Implementing the Large-Scale Equipment Renewal and Consumer Goods Trade-in Policy in 2026," along with the first batch of 62.5 billion yuan in funds to support consumer goods trade-ins. (Bullish ★) The minutes from the US Fed's December meeting showed that the FOMC agreed to cut interest rates at the December meeting, but officials were deeply divided. Some participants indicated that, based on their economic outlook, after lowering the target range at this meeting, it might be necessary to maintain the target range unchanged for some time. The minutes also showed that if inflation declines gradually as expected, most officials viewed further rate cuts as appropriate. (Neutral ★)

Fundamentals:Supply side, new aluminum projects in China and Indonesia continued to ramp up, with daily average production increasing further. Additionally, a new aluminum project in Inner Mongolia announced a successful power-on on December 20. In the near term, daily average aluminum production is expected to continue growing. Demand side, high prices suppressed downstream cargo pick-up demand, and environmental protection-related controls in central China intensified further, leading to full production halts at some local aluminum processing enterprises. Spot demand continued to shrink accordingly, with production expected to gradually resume after the New Year's Day holiday. The operating rate declined. Inventory side, according to SMM statistics, domestic aluminum ingot inventory in mainstream consumption areas recorded 660,000 mt this Wednesday, with an inventory buildup of 15,000 mt compared to this Monday.

Primary Aluminum Market:In the early session, the SHFE aluminum 2601 contract fell, with the price center significantly lower than the previous trading day. On Tuesday, aluminum prices declined, and buying sentiment in the east China market slightly increased, with some downstream users restocking. However, affected by year-end settlement and account closing, overall trading sentiment remained low. On Tuesday, mainstream transaction prices mainly ranged from a discount of 10 yuan/mt to parity against the SMM average price. The selling sentiment index in the east China market was 2.03, down 0.1 WoW, while the buying sentiment index was 2.24, up 0.04 WoW. The SMM A00 aluminum price was quoted at 22,180 yuan/mt, down 310 yuan/mt from the previous trading day, at a discount of 200 yuan/mt against the Jan '26 contract, unchanged from the previous day. Aluminum prices corrected, but downstream demand remained weak. Environmental protection-driven production restrictions intensified, leading downstream processing enterprises in central China to suspend raw material procurement, which dampened traders' buying sentiment. Overall market transactions were weak, but are expected to improve after processing enterprises gradually resume operations following the New Year holiday. On Tuesday, actual transaction prices in the central China market hovered between a discount of 30 yuan/mt and parity against the central China price. The selling sentiment index in the central China market was 2.72, down 0.01 WoW, while the buying sentiment index was 1.53, up 0.16 WoW. The SMM central China aluminum price closed at 21,970 yuan/mt, down 330 yuan/mt from the previous trading day, at a discount of 410 yuan/mt against the Jan '26 contract, down 20 yuan/mt from the previous day. The price spread between Henan and Shanghai was -210 yuan/mt, down 20 yuan/mt from the previous day.

Recycled Aluminum Raw Materials: On Tuesday, spot primary aluminum prices corrected from the previous trading day, with the SMM A00 spot price closing at 22,180 yuan/mt. The aluminum scrap market followed the downward trend of primary aluminum prices. Some scrap utilization enterprises reported high inventories of wrought aluminum alloy scrap accumulated during the peak season, and lacking sufficient orders on hand to hedge against raw material inventories, they temporarily slowed their procurement pace for related scrap materials. As 2026 approaches, the implementation of resource recycling policies still faces significant obstacles, with issues such as natural persons and invoice upper limits remaining difficult to resolve. Some recycling enterprises have already chosen to pass on additional tax burdens to the aluminum scrap supply side, increasing the risk of downward pressure on aluminum scrap price floors. On Tuesday, baled UBC was mainly quoted at 16,700-17,100 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was mainly quoted at 18,300-18,800 yuan/mt (ex-tax). Prices in Shanghai, Zhejiang, Jiangsu, Tianjin, and Shandong fell by 100-300 yuan/mt on Tuesday, while prices in Guizhou, Henan, Jiangxi, and Hubei fell by 100 yuan/mt or remained largely stable. Domestic aluminum scrap prices are expected to hover at highs around the New Year holiday, but caution is warranted against the risk of a correction from elevated levels. Supply side, the issue of tax burden transfer further affects the market supply structure. Demand side, stocking demand from secondary aluminum alloy enterprises for the Chinese New Year will continue to support procurement of aluminum tense scrap, but signs of slowing demand from downstream die-casting enterprises, combined with wait-and-see sentiment driven by aluminum price fluctuations, have weakened overall demand support for prices. Policy level, the uncertainty of recurring environmental protection-driven production restrictions in central China and Chongqing continued to suppress local demand in the short term. Price-wise, the center for shredded aluminum tense scrap (priced based on aluminum content) hovered at 18,200-18,700 yuan/mt (tax excluded). Short-term focus should be on signals of easing environmental protection-driven production restriction policies, changes in downstream enterprises' procurement pace, and the impact of tax burden shifting on price floors.

Secondary Aluminum Alloy:Futures side, on Tuesday, the most-traded cast aluminum alloy futures contract 2602 opened at 21,330 yuan/mt, quickly hit the day's low of 21,320 yuan/mt, then rebounded rapidly to touch the day's high of 21,670 yuan/mt, before pulling back under pressure and finally closing at 21,475 yuan/mt, down 170 yuan/mt or 0.79% from the previous close. The intraday trend showed a pattern of bottoming out and rebounding, then retreating after hitting highs, with bears mainly increasing positions. In the spot market on Tuesday, SMM A00 aluminum price fell sharply by 310 yuan/mt to 22,180 yuan/mt; SMM ADC12 price pulled back by 100 yuan/mt to 22,300 yuan/mt. After hitting near three-year highs, aluminum prices saw a significant pullback, and copper prices also fell by over 3,000 yuan/mt in a single day, dragging down aluminum scrap prices by 100-300 yuan/mt across the board. Secondary aluminum plants' offers were divergent: some lowered quotes by 100 yuan/mt following the market, while others held steady and adopted a wait-and-see approach, keeping prices firm. Demand side, affected by high aluminum prices and year-end account closures, overall performance was weak, with insufficient downstream purchase willingness, and the market showed a state of "price without market." Overall, high costs and tightening supply supported prices, but declining demand and aluminum prices fluctuating at highs suppressed downstream procurement enthusiasm, leaving limited upside room for prices. ADC12 prices were expected to hover at highs in the short term. Import side, current overseas ADC12 offers rose slightly to the range of $2,660-2,690/mt, with real-time import profit margins around 300 yuan/mt.

Aluminum Market Summary:Macro perspective, the implementation of the 2026 national subsidy plan and fund disbursement, focusing on stimulating consumer goods trade-ins, is expected to boost downstream aluminum demand in the medium to long term, forming a policy floor expectation. Demand side was constrained by high prices and environmental protection-driven production restrictions, with the proportion of liquid aluminum declining significantly, and operating rates in downstream extrusion and other sectors remaining weak, indicating sluggish spot consumption. Overall, suppressed fundamental consumption and continuously increasing inventory significantly capped the upward momentum for prices. Aluminum prices were expected to mainly fluctuate in the short term, with obvious resistance above.

[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.]