Profit-Taking Leads to High Aluminum Prices Retreating from Highs [SMM Aluminum Morning Meeting Minutes]

1.8 SMM Morning Meeting Minutes

Futures: During the night session on January 7, the most-traded SHFE aluminum 2602 contract opened at 24,350 yuan/mt, hit a high of 24,370 yuan/mt, touched a low of 23,865 yuan/mt, and finally closed at 24,135 yuan/mt, down 225 yuan/mt or 0.92% from the previous close. Technically, the MA moving averages showed a bullish alignment (MA5: 24,338.00 > MA10: 23,576.00 > MA20: 22,940.00 > MA40: 22,470.00), and the MACD 4-hour candlestick chart continued to show red bars (DIFF: 588.67, DEA: 405.99). In terms of open interest, the night session open interest was approximately 219,000 lots, a decrease of 12,121 lots from the daytime session. LME aluminum opened at $3,128/mt, reached a high of $3,141.5/mt, touched a low of $3,074.5/mt, and finally closed at $3,083.5/mt, down 1.60% from the previous day. Trading volume was 31,500 lots, down 10,581 lots, while open interest was 688,000 lots, up 3,122 lots.

Macro Front: Data released by the US Bureau of Labor Statistics on Wednesday showed that the number of job openings in the US fell more than market expectations in November, while hiring activity slowed, indicating continued cooling in labor demand amid economic uncertainty. Specifically, the number of JOLTS job openings dropped to 7.15 million in November from a downwardly revised 7.45 million in the previous month, hitting the lowest level in over a year, against market expectations of 7.6 million. Job openings are often seen as a key indicator of labor demand. (Bullish ★) According to CME's "FedWatch": the probability of the US Fed cutting interest rates by 25 basis points in January is 11.6%, while the probability of keeping rates unchanged is 88.4%. By March, the probability of a cumulative 25-basis-point rate cut is 40.3%, the probability of keeping rates unchanged is 55.4%, and the probability of a cumulative 50-basis-point rate cut is 4.3%. (Bearish ★)

Fundamentals: In the spot market, east China saw relatively high downstream purchasing sentiment overall due to the low spot-futures price spread, leading to improved transaction activity. Sentiment recovered in central China, with major suppliers persistently holding back from selling, resulting in limited circulating supply. Downstream processing enterprises maintained small purchases or suspended purchases altogether due to high absolute prices, but traders actively raised prices for hedging purposes, driving prices higher, though transaction volumes remained low. The spot market in south China was hot, with tight arrivals and inventory drawdowns. Suppliers showed strong bullish sentiment amid the low spot-futures price spread, generally actively raising prices and holding back cargoes, leading to increasingly tight circulation.

Primary Aluminum Market: In the morning session, the SHFE aluminum 2601 contract continued to rise, with the price center moving higher compared to the previous trading day. Influenced by the low spot-futures price spread, overall downstream purchasing sentiment was relatively high, and transaction activity improved. On Wednesday, mainstream transaction prices mainly ranged from parity to a premium of 20 yuan/mt against the SMM average price. The east China market selling sentiment index was 2.5, up 0.23 WoW; the buying sentiment index was 2.77, up 0.38 WoW. The SMM A00 aluminum price was quoted at 24,140 yuan/mt, up 230 yuan/mt from the previous trading day, at a discount of 200 yuan/mt against the 2601 contract, narrowing 20 yuan/mt from the previous trading day. On Wednesday, trading sentiment in the central China market recovered slightly. Major holders persistently held back from selling, resulting in limited spot supply availability. Downstream processing enterprises maintained minimal or suspended purchases due to high absolute prices, but traders actively purchased to cover hedged positions, driving prices higher, though trading volume remained low. Ultimately, the actual transaction price in the central China market climbed from a discount of 10 yuan to a premium of 30 yuan against the central China price before the market opened. The central China market selling sentiment index was 2.48, down 0.01 WoW; the buying sentiment index was 2.07, up 0.03 WoW. The SMM central China aluminum price closed at 23,930 yuan/mt, up 250 yuan/mt from the previous trading day, at a discount of 410 yuan/mt against the 2601 contract, up 30 yuan/mt from the previous trading day; the Henan-Shanghai price spread was -210 yuan/mt, up 20 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials:On Wednesday, spot primary aluminum prices continued to rise compared to the previous trading day, with the SMM A00 spot price closing at 24,140 yuan/mt. The aluminum scrap market followed the upward trend of primary aluminum prices. On Wednesday, baled UBC was mainly quoted at 17,800-18,200 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was mainly quoted at 19,400-19,900 yuan/mt (ex-tax). Directly influenced by the primary aluminum price increase, prices in Shanghai, Zhejiang, Jiangsu, Tianjin, Shandong, Jiangxi, and other regions were raised by 100-200 yuan/mt on Wednesday. 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 3,759 yuan/mt on January 7, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,684 yuan/mt. With scrap aluminum prices forced to follow the high aluminum prices, a situation of "nominal prices without actual transactions" has emerged, dampening downstream buying sentiment, leading to purchasing as needed. Domestic aluminum scrap prices are expected to fluctuate at highs following primary aluminum this week, while remaining cautious about potential pullback risks. Supply side, the issue of tax burden shifting further affects the market supply structure. Demand side, stocking demand from secondary aluminum alloy enterprises for the Chinese New Year will continue to support purchases of aluminum tense scrap, but signs of demand slowdown from downstream die-casting enterprises are becoming increasingly evident, coupled with wait-and-see sentiment due to aluminum price volatility. Furthermore, 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 the procurement pace for related scrap. Overall, demand support for prices has weakened.

Secondary Aluminum Alloy: Futures side, the aluminum alloy 2603 contract retreated after a rapid rise and then fluctuated with a rebound this Wednesday. It opened at 22,915 yuan/mt, quickly surged to an intraday high of 23,490 yuan/mt, then pulled back to a low of 22,705 yuan/mt. By the midday close, it rebounded to 23,105 yuan/mt, up 0.48%. Trading volume was 15,889 lots, and open interest was 20,650 lots. Bulls still had some willingness to increase positions, but short-term trading activity declined. Spot market, aluminum prices continued to rise this Wednesday. The SMM A00 aluminum price increased by 230 yuan/mt to 24,140 yuan/mt, and the SMM ADC12 price followed, rising by 200 yuan/mt to 23,700 yuan/mt. Currently, with aluminum prices breaking through the high of 24,000 yuan/mt, pressure intensified on both the supply and demand sides of the secondary aluminum industry, leading to diverging market sentiment. Supply side, finished product inventories at secondary aluminum enterprises were generally low. Coupled with tight supply and persistently high prices for aluminum scrap, this further pushed secondary aluminum alloy prices up rapidly. Demand side, downstream resistance to high prices was strong. Most enterprises switched to digesting inventories, postponing purchases, or only maintaining essential demand; some even planned early production halts. Only a few customers, concerned about further price increases, actively placed forward orders. The overall market trading atmosphere was sluggish. The current "soaring" aluminum prices caused poor cost transmission through the industry chain. Downstream production cuts and halts increased. Moreover, with the Chinese New Year approaching, market expectations for pre-holiday stockpiling significantly weakened, notably suppressing market vitality. If prices remain firm, the production and sales pace in the secondary aluminum industry may slow down further in the short term. Overall, bullish and bearish factors are intertwined in the current secondary aluminum market: cost drivers and tight supply provide support for prices, while weak downstream demand and fear of high prices create downward pressure. However, the continued release of short-term macro tailwinds will provide a boost to the market. The ADC12 price is expected to continue fluctuating at highs. Import side, current overseas ADC12 offers temporarily stabilized in the range of $2,820-2,850/mt, while domestic prices continued to increase significantly, pushing the real-time profit for imports to expand again to around 500 yuan/mt.

Aluminum Market Summary:The logic of the monetary easing cycle, driven by expectations for US Fed interest rate cuts, remained unchanged, continuously supporting nonferrous metal prices. Combined with a rebound in global risk appetite, aluminum prices successfully broke through the previous consolidation range and rose sharply. Domestically, the dual catalysts of monetary easing and new consumption policies both boosted commodity market risk appetite and solidified demand expectations, resonating with overseas factors and further consolidating the foundation for rising aluminum prices. However, demand side was significantly suppressed by high prices and environmental protection-driven production restrictions. The operating rate of leading downstream processing enterprises declined in December, and the proportion of liquid aluminum decreased by 0.8 percentage points MoM to 76.5%, indicating a seasonal weakening trend in end-use consumption. Overall, the current fundamentals, with consumption under pressure and inventory continuing to accumulate, are exerting some downward pressure on aluminum prices. However, strong macro policy expectations and geopolitical risks provide solid support for a rise in aluminum prices. SMM expects aluminum prices to fluctuate at highs in the short term.

[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.]