The Catch-Up Rally in Funds Has Ended, and Aluminum Prices Face Short-Term Correction Pressure, with Release Imminent [SMM Aluminum Morning Meeting Minutes]

1.9 SMM Morning Meeting Minutes

Futures: During the night session on January 8, the most-traded SHFE aluminum 2602 contract opened at 23,895 yuan/mt, reached a high of 23,965 yuan/mt, touched a low of 23,405 yuan/mt, and finally closed at 23,710 yuan/mt, down 15 yuan/mt or 0.06% from the previous close. Technically, the MA moving averages showed a bullish alignment (MA5: 24,125.00 > MA10: 23,831.00 > MA20: 23,095.25 > MA40: 22,555.63), and the MACD 4-hour candlestick level continued to show a red bar (DIFF: 520.52, DEA: 452.68). In terms of open interest, the night session open interest was approximately 191,000 lots, down 9,237 lots from the daytime session. LME aluminum opened at $3,081.0/mt, hit a high of $3,102.0/mt, touched a low of $3,049.0/mt, and finally closed at $3,088.0/mt, up 0.15% from the previous day. Trading volume was 32,600 lots, an increase of 1,053 lots, while open interest was 687,000 lots, down 475 lots.

Macro Front:On Thursday local time, US Fed Governor Milan stated that interest rates are expected to be cut by approximately 150 basis points in 2026. This move is anticipated to create about 1 million jobs without triggering inflation. (Bullish ★) The US Congressional Budget Office projected that US GDP growth will accelerate to 2.2% in 2026, with PCE inflation at 2.7% in 2026 and 2.1% in 2028. The US unemployment rate is expected to drop to 4.6% in 2026 and further decline to 4.4% in 2028. The labour market in 2026 reflects increased labour demand and weak growth in labour supply. The US Fed interest rate is projected to fall to 3.4% in Q4 2026. (Bullish ★)

Fundamentals:Supply side, new primary aluminum projects in China and Indonesia continued to ramp up production, with the daily average production continuing to rise; additionally, a new aluminum project in Inner Mongolia announced a successful power-on on December 20, and in the near future, the daily average aluminum production is expected to continue growing. Demand side, the weekly operating rate of leading domestic aluminum downstream processing enterprises rebounded by 0.2 percentage points WoW to 60.1% this week, with varying performance across aluminum processing segments, but overall presenting a pattern of "supply-side disruptions easing and demand-side pressures intensifying." High aluminum prices have become the core factor restraining downstream consumption and the recovery of industry operating rates.

Primary Aluminum Market:In the morning session, the SHFE aluminum 2601 contract fluctuated downward, with the price center lower than the previous trading day. Sellers were reluctant to sell, market liquidity decreased, and overall trading sentiment fell WoW. Sellers held prices firm, and on Thursday this week, mainstream transaction prices were mainly in the range of a premium of 30 yuan/mt to 60 yuan/mt to the SMM price. On Thursday, the selling sentiment index in the east China market was 2.38, down 0.12 WoW, while the buying sentiment index was 2.68, down 0.1 WoW. SMM A00 aluminum was quoted at 24,000 yuan/mt, down 140 yuan/mt from the previous trading day, at a discount of 150 yuan/mt against the 2601 contract, narrowing by 50 yuan/mt from the previous trading day. On Thursday, selling sentiment in the central China market remained at the previous day's level. Due to wide premiums and discounts, holders held back from selling, leading to limited spot cargo availability in the market. Downstream processing enterprises maintained minimal purchasing or suspended purchases altogether amid high absolute prices. However, traders actively purchased to cover hedged positions, pushing prices higher, though trading volume remained low. After 9:40 AM, prices began to pull back slightly. Ultimately, actual transaction prices in the central China market ranged from a premium of 10 yuan to a premium of 60 yuan over the central China price. On Thursday, the selling sentiment index in the central China market was 2.47, down 0.02 WoW, while the buying sentiment index was 2.13, up 0.06 WoW. SMM central China aluminum price closed at 23,810 yuan/mt, down 120 yuan/mt from the previous trading day, at a discount of 340 yuan/mt against the 2601 contract, widening by 70 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -190 yuan/mt, narrowing by 20 yuan/mt from the previous trading day.

Recycled Aluminum Raw Materials: On Thursday, spot primary aluminum prices pulled back slightly from the previous trading day, with SMM A00 aluminum closing at 24,000 yuan/mt. The aluminum scrap market followed primary aluminum prices lower. On Thursday, baled UBC was mainly offered at 17,700–18,100 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was mainly offered at 19,300–19,800 yuan/mt (ex-tax). Prices in Shanghai, Zhejiang, Jiangsu, Tianjin, Shandong, and Jiangxi fell by 100–200 yuan/mt on Thursday. In terms of the price difference between primary aluminum and scrap, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 3,766 yuan/mt on January 8, while the price difference between A00 aluminum and shredded aluminum tense scrap was 2,691 yuan/mt. With aluminum prices at high levels, scrap aluminum is forced to follow the uptrend, resulting in a situation of "nominal prices without actual transactions." Downstream buying sentiment cooled significantly, and purchasing was limited to immediate needs. Next week, the aluminum scrap market is expected to hover at highs, with shredded aluminum tense scrap (priced based on aluminum content) mainly trading in the range of 18,800–19,200 yuan/mt (ex-tax). High primary aluminum prices will provide bottom support for scrap aluminum, but inefficiencies in cost transmission along the industry chain will limit upside room. Inventory pressure on the supply side and the fragmented nature of scrap sources are unlikely to change in the short term. Demand-side suppression is intensifying. As the Chinese New Year approaches, enterprises are gradually entering holiday shutdowns, and the operating rate of secondary aluminum producers will decline further. The scope of production cuts and shutdowns among downstream enterprises will expand, and stocking demand is unlikely to provide effective support. Overall, the tug-of-war between sellers and buyers continues. Close attention should be paid to the trend of primary aluminum prices, the progress of downstream shutdowns, and pre-holiday trading activity, while remaining vigilant against the risk of a pullback from highs.

Secondary Aluminum Alloy: In the futures market, the aluminum alloy 2603 contract opened at 23,050 yuan/mt on Thursday, fluctuating around 23,000 yuan/mt in the morning session before falling sharply in the afternoon to a low of 22,405 yuan/mt. It finally closed at 22,585 yuan/mt, down 450 yuan/mt or 1.95% from the previous close. Bears dominated position increases, closing with a long upper shadow bearish candlestick. Short-term overbought conditions call for a correction, but moving averages still provide support. In the spot market, aluminum prices stopped rising and pulled back on Thursday this week. The SMM A00 aluminum price fell 140 yuan/mt to 24,000 yuan/mt, while the SMM ADC12 price held steady at 23,700 yuan/mt for the time being. Although the A00 aluminum price saw a slight correction, it remained above 24,000 yuan. In the secondary aluminum market, most morning offers held firm, but in the afternoon, some producers followed the futures market’s sharp decline, lowering prices by 100–200 yuan/mt. Amid the falling price trend, downstream buyers showed strong wait-and-see sentiment, with only limited restocking for rigid demand, resulting in sluggish transactions. Currently, the secondary aluminum market is influenced by both bullish and bearish factors: cost support and tight supply provide a floor for prices, but weak downstream demand and fear of high prices exert downward pressure. ADC12 prices are expected to show a high-level pullback in the short term. On the import side, overseas ADC12 offers remain stable in the range of $2,820–2,850/mt, with real-time import profit staying around 500 yuan/mt.

Aluminum Market Summary:Recently, the macro front remained strong. Expectations for US Fed interest rate cuts continue to drive the logic of a monetary easing cycle, supporting nonferrous metal prices. After copper prices hit record highs, funds shifted to the relatively undervalued aluminum market, creating a catch-up rally. Dual catalysts from monetary easing and new consumption policies have not only boosted risk appetite in commodity markets but also solidified demand expectations, resonating with overseas factors and further strengthening the foundation for aluminum price gains. In the domestic market, previously overheated sentiment has undergone a rational correction, leading to a short-term pullback in aluminum prices. Fundamentally, demand is significantly constrained 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 processing dropped 0.8 percentage points MoM to 76.5%, indicating seasonal weakness in end-use consumption. Current fundamentals, characterized by pressured consumption and accumulating social inventory, impose some restraint on continued aluminum price gains. However, strong macro policy expectations and geopolitical risks continue to provide solid support. Overall, as market sentiment cools and earlier profit-taking funds exit, short-term aluminum prices lack further upward momentum. SMM aluminum prices are expected to retreat from highs in the near term.

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