Strong Macro Sentiment Boosts Aluminum Prices to Continue Rising [SMM Aluminum Morning Meeting Minutes]

1.7 SMM Morning Conference Minutes

Futures: During the night session on January 6, the most-traded SHFE aluminum 2602 contract opened at 24,280 yuan/mt, hit a high of 24,750 yuan/mt, a low of 24,210 yuan/mt, and finally closed at 24,695 yuan/mt, up 360 yuan/mt or 1.48% from the previous close. From a technical perspective, the MA moving averages showed a bullish alignment (MA5: 23,953.00 > MA10: 23,235.50 > MA20: 22,738.50 > MA40: 22,372.00), and the MACD 4-hour candlestick level continued to show a red bar (DIFF: 541.56, DEA: 304.95). In terms of open interest, the night session open interest was approximately 253,000 lots, an increase of 434 lots from the daytime session. LME aluminum opened at $3,080.5/mt, reached a high of $3,138/mt, a low of $3,080.5/mt, and finally closed at $3,133.5/mt, up 1.41% from the previous day. Trading volume was 42,100 lots, an increase of 3,336 lots, and open interest was 685,000 lots, up 3,130 lots.

Macro front: In 2026, China will continue to implement a moderately accommodative monetary policy, leverage the integrated effects of incremental and existing policies, strengthen counter-cyclical and cross-cyclical adjustments, enhance the quality and efficiency of financial services in supporting the high-quality development of the real economy, and prudently defuse financial risks in key areas. (Bullish ★) According to the CME FedWatch Tool, the federal funds futures market still sees about an 82% probability that the US Fed will keep interest rates unchanged at its next meeting on January 27-28. (Bullish ★)

Fundamentals: Inventory side, before the Chinese New Year, the domestic aluminum ingot market showed a significant inventory buildup trend. According to SMM estimates, social inventory of aluminum ingots is expected to climb to around 780,000 mt by the end of January. By region, the inventory accumulation trend in Gongyi continued, but the pace of buildup is expected to slow down marginally; Wuxi saw increased pressure on inventory accumulation due to higher arrivals; Foshan's inventory maintained a stable-to-slightly-increasing pattern. Affected by high aluminum prices, the off-season, and regional environmental protection tightening, the weekly operating rate for aluminum wire and cable dropped to 57.6% last week, and a significant recovery is not expected in the near term. The operating rate may remain in the doldrums, with limited room for notable improvement. The dampening effect of high aluminum prices on downstream demand continues to unfold, leading to a cliff-like drop in domestic aluminum billet processing fees. Among them, processing fees in three regions have fallen to 0 yuan/mt, with some areas even entering negative processing fee territory.

Primary aluminum market: On Tuesday morning, the SHFE aluminum 2601 contract rose sharply, with the price center higher than the previous trading day. Due to restored fund flows after year-end closing, overall market trading activity improved. Downstream smelters remained relatively cautious in their purchase willingness due to high aluminum prices, showing low purchasing sentiment; meanwhile, traders' purchasing sentiment recovered, with increased inquiry and transaction activity. On Tuesday, mainstream transaction prices mainly ranged from a discount of 10 yuan/mt to a premium of 10 yuan/mt against the SMM average price. The selling sentiment index in the east China market was 2.26, up 0.18 WoW, while the buying sentiment index was 2.39, up 0.24 WoW. The SMM A00 aluminum price was quoted at 23,910 yuan/mt, up 600 yuan/mt from the previous trading day, at a discount of 220 yuan/mt against the 2601 contract, flat from the previous day. Aluminum prices continued their upward trend on Tuesday. Trading sentiment in the central China market remained sluggish, with high absolute aluminum prices suppressing purchasing demand from downstream processing enterprises. Procurement was primarily for essential restocking needs in small volumes. Most market transactions were for traders' hedging positions. Offerings showed significant divergence, and final actual transaction prices ranged from a discount of 30 yuan/mt to a premium of 20 yuan/mt against the central China price. Today, the selling sentiment index in the central China market was 2.50, down 0.01 WoW, while the buying sentiment index was 2.04, up 0.08 WoW. The SMM central China aluminum price closed at 23,680 yuan/mt, up 600 yuan/mt from the previous trading day, at a discount of 450 yuan/mt against the 2601 contract, flat from the previous day. The price spread between Henan and Shanghai was -230 yuan/mt, flat from the previous day.

Recycled Aluminum Raw Materials: Spot primary aluminum prices continued to rise significantly on Tuesday compared to the previous trading day, with the SMM A00 spot price closing at 23,910 yuan/mt. The aluminum scrap market followed the upward trend of primary aluminum prices. On Tuesday, baled UBC was mainly quoted in the range of 17,500-18,000 yuan/mt (tax excluded), and shredded aluminum tense scrap (priced based on aluminum content) was mainly quoted in the range of 19,300-19,800 yuan/mt (tax excluded). Directly affected by the surge in primary aluminum prices, quotes in Shanghai, Zhejiang, Jiangsu, Tianjin, Shandong, and Jiangxi increased by 400-600 yuan/mt on Tuesday, while quotes in Guizhou, Henan, and Hubei increased by 300-400 yuan/mt. 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 was 3,596 yuan/mt on January 6, and the price difference between A00 aluminum and shredded aluminum tense scrap was 3,521 yuan/mt. Currently, with aluminum prices at high levels forcing scrap prices to follow suit, a situation of "nominal prices without actual transactions" has emerged. Downstream buying sentiment was significantly dampened, leading to purchasing only as needed.

Secondary Aluminum Alloy: In the spot market, aluminum prices hit a new multi-year high again on Tuesday. The SMM A00 aluminum price surged another 600 yuan/mt in a single day to 23,910 yuan/mt, with a cumulative increase of 1,450 yuan over the past two days, driving up the cost of recycled aluminum raw materials continuously. The SMM ADC12 price followed, rising 400 yuan/mt to 23,500 yuan/mt. However, facing the sharp jump in raw material prices, downstream demand remained weak. Die-casting enterprises, squeezed by both reduced orders and high-priced raw materials, adopted a cautious procurement approach with strong risk aversion. Inquiries were frequent, but market transactions were scarce. Some downstream players, facing sudden cost increases and difficulty in passing the price pressure further down the chain, were considering production cuts or even shutdowns to alleviate operational pressure. Overall, the current secondary aluminum market is influenced by a mix of bullish and bearish factors: cost-driven support and tight supply are providing a floor for prices, while weak downstream demand and market fear of high prices are exerting downward pressure. However, the continued release of short-term macro tailwinds is expected to boost the market, with ADC12 prices likely to continue fluctuating at highs.

Aluminum Market Summary: The monetary easing cycle logic, dominated by expectations for US Fed interest rate cuts, has not shifted, providing strong support for nonferrous metal prices; the rebound in global risk appetite has further improved the macro environment, helping aluminum prices break through the previous trading range and rise sharply. Domestically, the fiscal work conference clarified that 2026 will see an expansion of fiscal expenditure and a boost to domestic consumption demand, with a focus on areas related to new quality productive forces; coupled with the implementation of the 2026 national subsidy plan and the allocation of supporting funds, policy efforts are concentrated on the trade-in policy for consumer goods. From a medium and long-term perspective, this is expected to continuously leverage the release of downstream demand for aluminum, building a solid policy-backed expectation for the industry's demand side. However, demand side was significantly suppressed by high prices and environmental protection-driven production restrictions. In December, the operating rate of leading downstream processing enterprises declined, and the proportion of liquid aluminum dropped 0.8 percentage points MoM to 76.5%, with end-use consumption showing a seasonal weakening trend. Overall, although the reality of pressured fundamental consumption and continuously accumulating inventory is exerting some downward pressure on aluminum prices, strong macro policy expectations and geopolitical risk disruptions are providing solid support for the price rise. SMM expects aluminum prices to mainly hold up well in the short term.

[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.]