Rising Risks of EU-US Trade Frictions, Significant Resistance to Short-Term Aluminum Price Rise [SMM Aluminum Morning Meeting Minutes]

SMM Morning Meeting Minutes, 1.19

Futures:SHFE aluminum closed at 23,945 yuan/mt in the night session last Friday, down 0.99%. Prices traded above all key moving averages (MA5 23,939, MA60 23,924.17), but pulled back near the short-term averages, indicating high-level fluctuations in the near term. The MACD lines were above the zero axis (DIF 3.6179, DEA 3.3802), with the histogram shrinking to 0.4753, suggesting weakening upward momentum. The core trading range for SHFE aluminum is suggested at 23,700-24,100. LME aluminum closed at $3,132/mt in the night session, with minimal volatility. Prices traded near the MA5 (3,132.4) but fell below the MA10 (3,133.5) and MA60 (3,137.57), showing signs of weakness in the short-term moving average system. The MACD lines were below the zero axis (DIF -1.4856, DEA -1.2182), with a negative histogram of -0.5346, indicating strengthening bearish sentiment. The core trading range for LME aluminum is suggested at 3,100-3,160.

Macro Front:Multiple EU countries are considering imposing additional tariffs on US goods worth 93 billion euros exported to Europe, or restricting US enterprises' access to the EU market, in retaliation for US President Trump's tariff hikes on eight European countries to acquire Greenland. Previously, Trump announced on social media that, starting February 1, a 10% additional tariff would be imposed on goods from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland exported to the US, with the tariff rate increasing to 25% from June 1 until an agreement is reached on the US "comprehensive and thorough purchase of Greenland." (Bearish ★)

Fundamentals:Supply side, new aluminum projects in China and Indonesia continued to ramp up, with daily average production further increasing. Demand side, the overall weekly operating rate of downstream sectors remained relatively weak this week, but operating rates for primary alloy and aluminum plate/sheet, strip and foil saw a slight rebound. Some primary alloy enterprises began year-end stockpiling, providing rigid support for demand. For plate/sheet, strip and foil, downstream can stock and food packaging are in the peak consumption season, initiating pre-holiday stockpiling. However, high prices continued to suppress demand, and amid the traditional off-season, the proportion of liquid aluminum in aluminum production continued its downward trend this week, down 0.21 percentage points MoM, with no significant improvement in fundamentals. Inventory side, according to SMM statistics, aluminum ingot inventory in mainstream consumption areas recorded 749,000 mt this Monday, an increase of 13,000 mt compared to last Thursday.

Primary Aluminum Market:The SHFE aluminum 2602 contract fluctuated during the morning session last Friday, with the price center lower than the previous trading day. Influenced by the decline in aluminum prices, overall downstream procurement sentiment recovered somewhat, with mainstream transaction prices mainly ranging from parity to a premium of 20 yuan/mt. Last Friday, the sales sentiment index in the east China market was 2.61, up 0.04 WoW; the purchasing sentiment index was 2.55, up 0.11 WoW. SMM A00 aluminum closed at 24,030 yuan/mt, down 160 yuan/mt from the previous trading day, at a discount of 180 yuan/mt against the 2602 contract, down 10 yuan/mt from the previous trading day. Last Friday, trading activity in the central China market continued to recover. Although downstream plants mainly purchased based on rigid demand with slight restocking, large traders actively purchased, accelerating the circulation of spot cargo. Holders held prices firm and were reluctant to sell, driving market prices higher. Eventually, actual transaction prices in the central China market rose steadily, ranging from a discount of 10 yuan to a premium of 20 yuan against the central China price. Last Friday, the sales sentiment index in the central China market was 2.67, up 0.07 WoW; the purchasing sentiment index was 2.25, up 0.30 WoW. SMM central China closed at 23,880 yuan/mt, down 150 yuan/mt from the previous trading day, at a discount of 330 yuan/mt against the 2602 contract, down 20 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -150 yuan/mt, narrowing by 10 yuan/mt from the previous trading day.

Aluminum Scrap:Last Friday, spot primary aluminum prices continued to experience a slight correction compared to the previous trading day, with SMM A00 spot aluminum closing at 24,030 yuan/mt. Aluminum scrap prices overall held steady or followed with minor declines. Supply side, environmental protection-driven production restrictions in central China were lifted, but inventory levels of wrought aluminum alloy scrap remained saturated. Demand side, the characteristic of "nominal prices without actual transactions" became prominent, with downstream users showing strong resistance to high prices, mostly purchasing as needed or digesting inventories. Some enterprises planned to halt production early, and expectations for Chinese New Year stockpiling weakened. Last Friday, baled UBC was mainly offered at 17,200-17,700 yuan/mt (tax excluded), while shredded aluminum tense scrap (priced based on aluminum content) was mainly offered at 19,150-19,650 yuan/mt (tax excluded). Regarding the price difference between A00 aluminum and aluminum scrap: on January 16, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 3,743 yuan/mt, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,614 yuan/mt. The aluminum scrap market is expected to hover at highs this week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) at 19,600-20,100 yuan/mt (tax excluded). High primary aluminum prices will provide bottom support for aluminum scrap, but the situation of losses continues to intensify, forcing downstream enterprises to further expand production cuts and halts. Weak stocking demand limits the upside. Overall, the tug-of-war between sellers and buyers persists, requiring close monitoring of primary aluminum trends, the progress of downstream production halts, and pre-holiday transaction conditions, while remaining vigilant against the risk of a correction from highs.

Secondary Aluminum Alloy:Futures side, the aluminum alloy 2603 contract opened at 23,070 yuan/mt last Friday. The futures fluctuated downward overall, hitting a bottom of 22,605 yuan/mt, and finally closed at 22,735 yuan/mt, down 420 yuan/mt or 1.81% from the previous close. Bulls mainly reduced their positions. In the spot market, aluminum prices saw another significant correction today, with A00 prices falling 160 yuan/mt to 24,030 yuan/mt, and SMM ADC12 prices dropping 100 yuan/mt to 23,900 yuan/mt. Although two consecutive declines during the week cooled market sentiment, absolute prices remained above 24,000 yuan/mt, hovering at highs. Quotations in the secondary aluminum market diverged: some enterprises chose to hold steady and adopt a wait-and-see approach due to firm costs, low inventory, or bullish expectations, while others, affected by weak demand, lowered prices by 100-300 yuan/mt in line with market conditions. On the demand side, the wait-and-see sentiment intensified due to falling prices. Although some die-casting companies, pressured by production needs, restocked, leading to a marginal improvement in inquiry activity and purchase willingness, actual transactions remained sluggish due to downstream losses, causing a noticeable decline in orders for some secondary aluminum plants. In the short term, secondary aluminum alloy prices are expected to hover at highs. On one hand, cost support weakened, and the market was suppressed by both the off-season and losses, resulting in sluggish trading activity. On the other hand, uncertainties in regional tax policies, supply constraints from environmental protection-driven production restrictions, and macro tailwinds continued to provide a floor for prices. In the import market, overseas ADC12 quotations held steady at $2,860–2,890/mt, while domestic spot prices fell to 23,000-23,200 yuan/mt, with immediate import profits in the range of 300-500 yuan/mt.

Aluminum Market Summary:On the macro front, the EU will impose additional tariffs on US imports in retaliation against US tariff measures on several European countries, increasing uncertainty in the global trade environment. If this trade conflict continues to escalate, it will negatively impact aluminum demand expectations from both risk sentiment and end-use product trade flow perspectives. On the supply side, new aluminum capacity domestically and overseas continued to ramp up, with daily average production steadily increasing. Demand side showed structural divergence: the primary alloy and aluminum plate/sheet, strip and foil industries saw a slight rebound in operating rates due to year-end stockpiling and peak consumption season support, providing some rigid demand. However, high-price suppression and off-season effects persisted, and the proportion of liquid aluminum in aluminum production continued to decline MoM, indicating insufficient momentum for an overall recovery in end-use consumption. Fundamentally, no significant improvement was observed. Overall, rising macro trade friction risks will suppress market sentiment, and fundamentals also appear bearish given clear supply increments, only partial demand recovery, and continued inventory accumulation trends. However, funds' bullish sentiment toward aluminum futures prices has not completely cooled, and aluminum prices are expected to fluctuate at highs.

[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 as a substitute for independent judgment. Any decisions made by clients are unrelated to SMM.]