Expectations for US Fed interest rate cuts heat up, SHFE aluminum holds up well [SMM Aluminum Morning Meeting Minutes]

1.14 SMM Morning Conference Minutes

Futures: On the night session of January 13, the SHFE aluminum 2603 contract opened at 24,500 yuan/mt, closed at 24,780 yuan/mt, up 1.66%. After opening, it fluctuated upward, hitting a high of 25,005 yuan/mt, then pulled back and entered consolidation, touching a low of 24,500 yuan/mt. Trading volume was 380,000 lots, open interest was 380,000 lots. From a technical perspective, the MA system showed a bullish alignment (MA5: 24,580 > MA10: 24,340 > MA20: 23,814.25 > MA60: 22,677.75), with the medium and long-term upward trend unbroken. LME aluminum opened at $3,185.5/mt, hit a high of $3,215.5/mt, a low of $3,157.5/mt, and finally closed at $3,196/mt, up 0.16%. Trading volume was 30,700 lots, down 5,453 lots, open interest was 693,000 lots, up 4,800 lots.

Macro Front: US core CPI rose 0.2% MoM and 2.6% YoY in December, matching the lowest level in four years and below market expectations of 0.3% and 2.7%. As US inflation data weakened, traders strengthened expectations that the US Fed would cut interest rates by mid-year. (Bullish ★) Foreign Ministry Spokesperson Mao Ning presided over a regular press conference yesterday. A reporter asked that the US would impose a 25% tariff on countries conducting business with Iran. In response, Mao Ning stated that China's stance on tariff issues is very clear, there are no winners in a tariff war, and China will firmly safeguard its legitimate rights and interests. (Neutral)

Fundamentals: Inventory side, according to SMM statistics, on January 13, domestic aluminum ingot inventory across three locations saw an inventory buildup of 7,000 mt compared to the previous trading day. Among them, Wuxi area inventory increased by 10,500 mt, while Gongyi and Guangdong areas saw slight destocking.

Primary Aluminum Market: In the morning session, the SHFE aluminum 2602 contract fluctuated downward, with the price center lower than the previous trading day. High aluminum prices suppressed downstream procurement demand, and overall buyer trading sentiment declined WoW compared to the previous trading day. Mainstream transaction prices were mainly concentrated in the range of a discount of 150 yuan/mt to 130 yuan/mt against the 02 contract. This Tuesday, the east China market selling sentiment index was 2.59, down 0.05 WoW; the purchasing sentiment index was 2.49, down 0.25 WoW. SMM A00 aluminum was quoted at 24,300 yuan/mt, down 40 yuan/mt from the previous trading day, at a discount of 60 yuan/mt against the 2601 contract, up 40 yuan/mt from the previous trading day; at a discount of 150 yuan/mt against the 2602 contract. This Tuesday, the central China market sentiment recovered slightly, the premium/discount range narrowed, trading firms engaging in both spot and futures market showed increased willingness to sell, market supply circulation was relatively loose, and holders had a stronger willingness to hold prices firm, with market prices relatively stable. The actual transaction prices in the central China market ultimately ranged from a discount of 10 yuan to a premium of 10 yuan against the central China price. On Tuesday, the selling sentiment index in the central China market was 2.59, up 0.01 WoW; the purchasing sentiment index was 1.50, up 0.10 WoW. SMM's central China price closed at 24,140 yuan/mt, down 40 yuan/mt from the previous trading day, at a discount of 220 yuan/mt against the 2601 contract, up 40 yuan/mt from the previous trading day; at a discount of 310 yuan/mt against the 2602 contract; the Henan-Shanghai price spread was -160 yuan/mt, flat from the previous trading day.

Aluminum Scrap:On Tuesday, spot primary aluminum prices edged down slightly compared to the previous trading day, with SMM A00 spot closing at 24,300 yuan/mt, while aluminum scrap market prices held steady overall. Supply side, environmental protection-driven production restrictions in central China were lifted, but inventory levels for wrought aluminum alloy scrap remained saturated. Demand side, the "price without market" characteristic became prominent, downstream resistance to high prices was strong, with most purchasing as needed or digesting inventories, some enterprises planned early production halts, and Chinese New Year stocking expectations weakened. On Tuesday, baled UBC was mainly offered at 17,700-18,100 yuan/mt (ex-tax), shredded aluminum tense scrap (priced based on aluminum content) was mainly offered at 19,450-19,950 yuan/mt (ex-tax). Regarding the price difference between A00 aluminum and aluminum scrap, on January 13, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 4,046 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,864 yuan/mt. The aluminum scrap market is expected to hover at highs this week, with shredded aluminum tense scrap (priced based on aluminum content) mainstream range at 18,800-19,200 yuan/mt (ex-tax). High primary aluminum prices will provide bottom support for aluminum scrap, but impeded cost transmission along the industry chain will limit upside room; inventory pressure on the supply side and the fragmented scrap sourcing landscape are difficult to change in the short term. The suppressing effect on the demand side intensified as the Chinese New Year approaches, enterprises successively enter holiday schedules, the operating rate of secondary aluminum producers will further decline, downstream production cuts and halts will expand in scope, and stocking demand is unlikely to provide effective support. Overall, the tug-of-war between sellers and buyers continues, requiring close tracking of primary aluminum price trends, downstream shutdown progress, and pre-holiday transaction activity, while remaining vigilant against high price pullback risks.

Secondary Aluminum Alloy:On Tuesday, the aluminum price center pulled back slightly, with the A00 price down 40 yuan/mt to 24,300 yuan/mt, while SMM ADC12 held steady at 23,950 yuan/mt. On Tuesday, the secondary aluminum market showed weak price adjustment willingness, with most enterprises maintaining stable prices and adopting a wait-and-see approach. As aluminum prices remained above 24,000 yuan/mt, the market's "price without market" characteristic remained prominent, actual transactions were mainly driven by rigid demand, downstream acceptance of high prices was limited, and wait-and-see sentiment was strong. From a market driver perspective, cost support and tight supply conditions provided bottom support for aluminum prices, but weak demand constrained price rises. Overall, buoyed by short-term macro tailwinds, ADC12 prices are expected to fluctuate at highs. Currently, the market is influenced by a mix of bullish and bearish factors, requiring close attention to changes in the supply-demand pattern and macro policy direction.

Aluminum Market Summary:Overall, the macro front remains strong recently. Expectations for US Fed interest rate cuts continue to drive the logic of a monetary easing cycle, supporting nonferrous metal prices and creating a catch-up rally. 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. Currently, the reality of pressured fundamental consumption and continuously accumulating social inventory imposes some restraint on sustained aluminum price rises. However, strong macro policy expectations and geopolitical risk disturbances, dominated by sentiment and capital flows, still provide support for aluminum prices. Aluminum prices are expected to mainly hover at highs.

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