After a Short-Term Boost from the Venezuela Incident, Rationality Returns, and the Tug-of-War Between Longs and Shorts in Aluminum Prices Intensifies [SMM Aluminum Price Weekly Review]

SMM January 8 News:

From a macro perspective, overseas, in the early hours of January 3, 2026 local time, the US launched a large-scale military operation against Venezuela, raiding the capital Caracas and arresting President Maduro and his wife. The incident quickly sparked concerns about supply chain security in global resource markets, becoming a "trigger" for the rise in nonferrous metals. US manufacturing activity contracted more than expected in December, remaining in contraction for the 10th consecutive month. The Institute for Supply Management (ISM) said on Monday that new orders declined again and input costs continued to climb as manufacturing continued to be affected by Trump's import tariffs. According to CME's FedWatch Tool, the federal funds futures market still sees about an 82% probability that the US Fed will keep rates unchanged at its next meeting on January 27-28. Domestic policies remained proactive; 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, improve the quality and efficiency of financial services in supporting the real economy's high-quality development, and prudently resolve financial risks in key areas. On the afternoon of January 5, President Xi Jinping held talks with South Korean President Lee Jae-myung, who was on a state visit to China, at the Great Hall of the People in Beijing.

On the fundamentals side, 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 future, daily average aluminum production is expected to continue growing. The overall operating rate of downstream sectors trended downward during the month, and the proportion of liquid aluminum declined correspondingly, dropping 0.8 percentage points MoM to 76.5%, a decrease slightly exceeding previous expectations. Based on SMM's liquid aluminum proportion data, China's aluminum ingot casting volume decreased 13.4% YoY but increased 7.7% MoM in December. Demand side, high prices continued to suppress downstream cargo pick-up demand. The operating rate for aluminum extrusion in China recorded 48.8% this week, down 1.9 percentage points WoW. However, thanks to the lifting of environmental protection-related controls in central China after New Year's Day as scheduled, the operating rate for aluminum plate/sheet, strip and foil rebounded significantly, driving the operating rate of leading aluminum downstream processing enterprises in China up slightly by 0.2 percentage points WoW to 60.1%. Inventory side, according to SMM statistics, aluminum ingot inventory in mainstream consumption areas in China recorded 714,000 mt on Thursday, an increase of 30,000 mt from last Sunday. Given that high aluminum prices are suppressing warehouse withdrawals, shipments from north-west China are smooth, and ingot casting volume is expected to continue increasing before the Chinese New Year, SMM expects inventory to rise to above 780,000 mt by the end of January 2026 and to show an overall inventory buildup trend in Q1.

Overall, the macro front remains strong recently, with the logic of a monetary easing cycle driven by expectations for US Fed interest rate cuts unchanged, continuously supporting nonferrous metal prices. After copper prices hit record highs, funds shifted to the relatively undervalued aluminum market, resulting in a catch-up rally. Coupled with a rebound in global risk appetite, aluminum prices successfully broke through the previous consolidation range and rose sharply. The dual catalysts of monetary easing and new consumption policies have not only boosted risk appetite in the commodity market but also solidified demand expectations, resonating with overseas factors to further consolidate the foundation for aluminum price increases. However, the Venezuela incident has a relatively small direct impact on the aluminum industry chain, mainly providing short-term sentiment-driven support; long-term prices still depend on supply-demand fundamentals and macro policies. Domestically, market rationality has begun to adjust, leading to a short-term correction in aluminum prices. Returning to fundamentals, the demand side is significantly suppressed by high prices and environmental protection-driven production restrictions. In December, the operating rate of leading downstream processing enterprises declined, with the proportion of liquid aluminum dropping 0.8 percentage points MoM to 76.5%, and end-use consumption showing seasonal weakness. Overall, the current reality of pressured fundamental consumption and continuously accumulating inventory poses some suppression on sustained aluminum price increases, but strong macro policy expectations and geopolitical risk disruptions provide solid support for aluminum price gains. SMM expects aluminum prices to mainly fluctuate at highs in the short term, with the most-traded SHFE aluminum contract projected to trade between 23,100-24,350 yuan/mt next week, and LME aluminum between 3,000-3,130 $/mt.

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