Macro Positive Signals Continue to Be Released, Aluminum Prices Hover at Highs [SMM Aluminum Morning Meeting Minutes]

1.5 SMM Morning Meeting Minutes

Futures: Due to the New Year holiday, the SHFE aluminum night session did not trade on the last day before the holiday. Before the holiday, the SHFE aluminum daytime session closed at 22,925 yuan/mt, with prices holding above all key moving averages (MA5 22,918, MA60 22,921.33), showing a strong consolidation pattern. In the MACD indicator, the DIF (-0.9677) and DEA (-4.4827) remained below the zero line, but the histogram turned significantly positive to 7.0301, indicating weakening downward momentum and a relatively strong short-term rebound. The core trading range for SHFE aluminum is suggested at 22,700-23,200 yuan/mt. LME aluminum closed at $3,021/mt, up 0.80%. Prices continued to trade above all moving averages (MA5 3,022.20, MA60 3,021.22), with short-term moving averages showing a bullish divergence and a strong structure. Both MACD lines were above the zero line (DIF 0.1392, DEA 0.1045), with the histogram slightly positive (0.0694), maintaining a mild bullish pattern. The core trading range for LME aluminum is suggested at $3,000-3,050/mt.

Macro Front: In a speech prepared in advance for the American Economic Association annual meeting on Saturday (3rd), Paulson stated, "I believe inflation will moderate, the labor market will stabilize, and this year's economic growth rate will be around 2%. If all these goals are achieved, some minor adjustments to the federal funds rate later this year may be appropriate." Overall, she suggested that moderate further interest rate cuts might be possible later in 2026, but she indicated this outcome depends on a favorable economic outlook. (Bullish ★) David Rosenberg, former chief North American economist at Merrill Lynch, known as the "Wall Street prophet," recently stated that the US economy faces significant challenges in 2026, with the job market potentially experiencing a sharp contraction. This would weaken the economic outlook and force the US Fed to take dramatic, aggressive interest rate cuts. (Bearish ★)

Fundamentals: Supply side, new aluminum projects in China and Indonesia continue 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, the daily average production of aluminum is expected to continue growing. Demand side, high prices are suppressing downstream cargo pick-up demand. Before the holiday, the operating rate of leading aluminum downstream processing enterprises in China fell 1 percentage point WoW to 59.9%. Coupled with the ongoing intensification of environmental protection-related controls in central China, some local aluminum processing enterprises have completely halted production. Spot aluminum demand has subsequently continued to shrink, with production expected to gradually resume after the holiday. The overall operating rate for downstream sectors showed a downward trend in December, with the proportion of liquid aluminum also declining, down 0.8 percentage points MoM to 76.5%, a decrease larger than expected at the beginning of the month. Based on SMM's proportion of liquid aluminum data, domestic aluminum ingot production in December decreased 13.4% YoY but increased 7.7% MoM. Inventory-wise, according to SMM statistics, aluminum ingot inventory in major domestic consumption areas recorded 680,000 mt on the first day of the holiday, building by 20,000 mt compared to pre-holiday levels. Given high aluminum prices suppressing warehouse withdrawals, smooth shipments from north-west China, and expectations for continued increases in ingot production before the Chinese New Year, SMM expects inventory to rise to around 730,000 mt by the end of January 2026, with an overall inventory buildup trend anticipated for Q1.

Primary Aluminum Market:The SHFE aluminum 2601 contract rose in the morning session, with its price center moving higher compared to the previous trading day. Last Wednesday, influenced by the approaching holiday and year-end closing, market sentiment in east China weakened overall, resulting in sluggish trading. Last Wednesday, mainstream transaction prices were mainly in the range of a discount of 20 yuan/mt to a discount of 10 yuan/mt against the SMM average price. The selling sentiment index for the east China market was 1.99 last Wednesday, down 0.03 WoW; the buying sentiment index was 2.11, down 0.13 WoW. SMM's A00 aluminum price was quoted at 22,460 yuan/mt, up 280 yuan/mt from the previous trading day, at a discount of 210 yuan/mt against the 2601 contract, down 10 yuan/mt from the previous trading day. Last Wednesday, trading in the central China market remained sluggish; intensified environmental protection-related controls coupled with another rise in aluminum prices further weakened demand. Additionally, as the New Year's Day holiday approached, some enterprises halted trading for year-end closing, resulting in low overall market trading volume, primarily consisting of traders selling off goods at low prices. Last Wednesday, actual transaction prices in the central China market hovered between parity and a discount of 40 yuan/mt against the central China price. The selling sentiment index for the central China market was 2.66 last Wednesday, down 0.06 WoW; the buying sentiment index was 1.50, down 0.03 WoW. SMM's central China aluminum price closed at 22,240 yuan/mt, up 270 yuan/mt from the previous trading day, at a discount of 430 yuan/mt against the 2601 contract, down 20 yuan/mt from the previous trading day; the price spread between Henan and Shanghai was -220 yuan/mt, down 10 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials:Last Wednesday, spot primary aluminum prices increased compared to the previous trading day, with SMM A00 spot closing at 22,460 yuan/mt; the aluminum scrap market followed the rise in primary aluminum prices. Some scrap utilization enterprises reported high inventories of wrought aluminum alloy scrap collected during the peak season and lacked sufficient orders on hand to hedge against raw material inventories, leading them to temporarily slow their procurement pace for related scrap. As 2026 approaches, the implementation of resource recycling policies still faces significant obstacles, with issues concerning natural persons and invoice upper limits 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. Last Wednesday, baled UBC was quoted in the range of 16,800-17,200 yuan/mt (tax excluded), and shredded aluminum tense scrap (priced based on aluminum content) was quoted in the range of 18,400-18,900 yuan/mt (tax excluded). Last Wednesday, prices in Shanghai, Zhejiang, Jiangsu, Tianjin, and Shandong increased by 200-300 yuan/mt, while prices in Guizhou, Henan, Jiangxi, and Hubei rose by 100 yuan/mt or remained largely stable. Regarding the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan stood at 3,084 yuan/mt on December 31, while the price difference between A00 aluminum and shredded aluminum tense scrap was 2,009 yuan/mt. The domestic aluminum scrap market price is expected to hover at highs around the New Year's Day holiday, though caution is warranted against a potential high-level correction. Supply side, the issue of tax burden shifting is further affecting the market supply structure. Demand side, stocking demand from secondary aluminum alloy enterprises ahead of the Chinese New Year will continue to support procurement of aluminum tense scrap, but signs of slowing demand from downstream die-casting enterprises are becoming increasingly evident, coupled with wait-and-see sentiment due to 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 remain in the range of 18,200-18,700 yuan/mt (excluding tax). Short-term focus should be on signals of the easing of environmental protection-driven production restriction policies, changes in procurement pace of downstream enterprises, and the impact of tax burden shifting on the price floor.

Secondary Aluminum Alloy:Futures side, last Wednesday, the most-traded cast aluminum alloy contract 2603 opened at 21,480 yuan/mt, dipped slightly to the day's low of 21,425 yuan/mt in the morning session before stabilizing and rebounding, then maintained an upward pace throughout the day, surging to the day's high of 21,865 yuan/mt towards the close, and finally settled at 21,855 yuan/mt, up 345 yuan/mt or 1.60% from the previous settlement. Bullish momentum continued to amplify, with prices breaking through recent highs, and the short-term bullish trend remains dominant. Spot market, last Wednesday, aluminum and copper prices strengthened jointly again; the SMM A00 aluminum price rose by 280 yuan/mt to 22,460 yuan/mt, driving up the cost center for recycled aluminum raw materials, while the SMM ADC12 price followed with an increase of 150 yuan/mt to 22,450 yuan/mt. Despite strong upward sentiment on the raw material side, demand performance was weak; die-casting enterprises, affected by order reductions and high aluminum prices, exhibited strong risk-averse procurement sentiment, resulting in a stalemate in transactions, and the number of holiday stoppage days (1-3 days) for New Year's Day increased compared to previous years. During the week, driven by a widening spot-futures price spread, traders actively sold goods, accelerating the destocking pace of social inventory. In summary, although there is support from the cost and supply sides, weak demand and fear of highs have suppressed the upside room for prices. ADC12 prices are expected to fluctuate at highs in the short term. Import side, current overseas ADC12 offers are in the range of $2,660–2,690/mt; as domestic prices rise again, the real-time profit margin for imports has expanded to around 500 yuan/mt.

Aluminum Market Summary:Overall, recent positive macro signals continue to be released; the domestic fiscal work conference clarified that 2026 will see expanded expenditure and efforts to boost consumption, with a focus on areas such as new quality productive forces. Moreover, the implementation of the 2026 national subsidy plan and fund allocation, aimed at stimulating trade-ins for consumer goods, is expected to boost downstream aluminum demand in the medium to long term, forming a policy-backed floor expectation. Demand side, significantly impacted by high-price suppression and environmental protection-driven production restrictions, saw the operating rate of leading downstream processing enterprises decline in December, with the proportion of liquid aluminum dropping 0.8 percentage points MoM to 76.5%, and end-use consumption showing a seasonal weakening trend. Overall, strong macro policy expectations are undoubtedly the hot topic of recent attention and trading in the aluminum market, also constructing a bottom defense line for aluminum prices. However, the reality of suppressed fundamental consumption and continuously increasing inventory will significantly restrain the momentum for prices to surge further. Aluminum prices are expected to mainly fluctuate at highs in the short term, with obvious resistance above.

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