Macro Positives Underpin Aluminum Market, Fundamentals Under Pressure Lead to Short-Term High-Level Consolidation [SMM Aluminum Morning Meeting Minutes]

January 28 SMM Morning Meeting Minutes

Futures: During the night session on January 27, the most-traded SHFE aluminum 2603 contract opened at 24,305 yuan/mt, hit a high of 24,530 yuan/mt, touched a low of 24,155 yuan/mt, and finally closed at 24,350 yuan/mt, up 45 yuan/mt or 0.19% from the previous close. Technically, the MA moving averages showed a bullish alignment (MA5: 24,313.00 > MA10: 24,223.50 > MA20: 24,205.00 > MA40: 24,009.63), while the MACD 4-hour candlestick level green bars continued but narrowed (DIFF: 140.88, DEA: 162.25). In terms of open interest, the night session open interest was about 311,000 lots, down 543 lots from the daytime session. LME aluminum opened at $3,182.5/mt, reached a high of $3,213.5/mt, touched a low of $3,153/mt, and finally closed at $3,212.5/mt, up 0.53% from the previous day. Trading volume was 23,200 lots, down 1,747 lots, and open interest was 696,000 lots, down 2,732 lots.

Macro Front: Trump expressed no concern about the weakening US dollar, and the US dollar index fell over 1%, hitting its lowest level since February 2022. (Bullish ★) According to People's Bank of China statistics, at the end of Q4 2025, the outstanding balance of RMB real estate loans was 51.95 trillion yuan, down 1.6% YoY, with a decrease of 963.6 billion yuan for the full year. At the end of Q4 2025, the outstanding balance of real estate development loans was 13.16 trillion yuan, down 3.0% YoY, with a decrease of 357.5 billion yuan for the full year. The outstanding balance of individual housing loans was 37.01 trillion yuan, down 1.8% YoY, with a decrease of 676.8 billion yuan for the full year. (Bearish ★)

Fundamentals: Aluminum billet processing fees showed signs of recovery above parity, but faced new downward pressure due to the surge in aluminum prices and monthly average price settlements. Currently, January-produced goods are profitable, but traders and billet producers have weak consumption expectations, keeping processing fees fluctuating near parity, with a reasonable range of 0-200 yuan/mt. In terms of aluminum billet inventory, this week saw rapid inventory buildup, largely in line with market expectations. The inventory increase was driven by seasonal factors and weak downstream orders, resulting in low purchasing enthusiasm and overall insufficient willingness to purchase. To alleviate in-factory inventory pressure, aluminum billet producers increased shipments to social inventory, leading to a significant rise in social inventory.

Primary Aluminum Market: In the early session, the most-traded SHFE aluminum 2602 contract fluctuated downward, with the price center lower than the previous trading day. On Tuesday, overall market trading sentiment remained low. Affected by high aluminum prices, traders mainly focused on selling; some downstream smelters restocked on Tuesday, but overall acceptance of high aluminum prices remained low, and the mainstream market discount widened. The mainstream market transactions were concentrated at a discount of 20 yuan/mt to a discount of 10 yuan/mt. On Tuesday, the selling sentiment index in the east China market was 2.83, down 0.07 WoW; the buying sentiment index was 2.39, up 0.03 WoW. SMM A00 aluminum closed at 23,870 yuan/mt, down 160 yuan/mt from the previous trading day, at a discount of 170 yuan/mt against the 2602 contract, down 10 yuan/mt from the previous trading day. On Tuesday, trading sentiment in the central China market continued to weaken slightly. Downstream processing enterprises, affected by environmental protection-driven production restrictions, saw a significant decline in purchasing volume, with restocking mainly for rigid demand only. Meanwhile, large holders offloaded substantial volumes, keeping market transaction prices at low levels. Only some traders held prices firm. Transaction prices were concentrated between a discount of 10 yuan to a discount of 40 yuan against the central China price. On Tuesday, the selling sentiment index in the central China market was 2.82, down 0.01 WoW; the buying sentiment index was 2.15, down 0.13 WoW. SMM central China price closed at 23,760 yuan/mt, down 180 yuan/mt from the previous trading day, at a discount of 280 yuan/mt against the 2602 contract, down 30 yuan/mt from the previous trading day. The price difference between Henan and Shanghai was -110 yuan/mt, widening by 20 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials:On Tuesday, spot primary aluminum prices decreased compared to the previous trading day, with SMM A00 spot aluminum closing at 23,870 yuan/mt. Aluminum scrap market prices generally followed the decline on Tuesday. On Tuesday, baled UBC scrap was quoted in the range of 17,350-17,850 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was quoted in the range of 19,400-20,000 yuan/mt (ex-tax). Regarding 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 3,445 yuan/mt on January 27, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,531 yuan/mt. Quotations in Henan, Foshan, Jiangxi, Anhui, and other regions were adjusted downward following the aluminum price on Tuesday. Against the backdrop of high aluminum prices forcing scrap aluminum to follow the rise, a situation of "nominal prices with no actual market" has emerged, dampening downstream buying sentiment, leading to purchasing as needed. 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 19,200-19,800 yuan/mt (ex-tax). Downward pressures persist as the Chinese New Year approaches, with enterprises gradually entering holiday schedules. Scrap yards closing early have reduced market liquidity, downstream operating rates remain low, and resistance to high prices is strong. Close attention should be paid to the trend of primary aluminum, weather changes, and pre-holiday production shutdown schedules, while remaining vigilant against the risk of a correction from high levels.

Secondary Aluminum Alloy:Futures side, on Tuesday, the aluminum alloy 2603 contract opened at 23,090 yuan/mt, fluctuated and declined after opening, hitting a bottom of 22,830 yuan/mt, bottomed out and rebounded in the afternoon, and finally closed at 23,055 yuan/mt, up 45 yuan/mt or 0.20% from the previous trading day, with the futures movement mainly driven by short covering. Spot market, A00 aluminum prices fell by 160 yuan/mt to 23,870 yuan/mt on Tuesday this week, while SMM ADC12 prices held steady at 24,000 yuan/mt. Aluminum prices declined more sharply on Tuesday, but secondary aluminum producers showed strong willingness to hold prices firm, with most quotations remaining stable. Demand side, constrained by high prices and weak pre-holiday stockpiling momentum, downstream procurement was mainly for rigid demand, and overall trading activity was sluggish. Supply side faced multiple disruptions: expectations for regional tax policy adjustments, stricter compliance checks on reverse invoicing in some areas, logistics disruptions due to snowfall, and repeated environmental protection-driven production restrictions in regions like Central China, leading some enterprises to cut production or halt operations early for holidays. The industry's operating rate is expected to trend downward in the short term. Overall, although high aluminum prices and seasonal off-season demand dampen market activity, cost-side support from aluminum scrap prices, coupled with supply tightness due to policy and environmental factors, suggest secondary aluminum alloy prices will continue to fluctuate at highs in the near term. Going forward, key focuses include raw material flow, changes in downstream operating rates, and the evolution of pre-holiday stockpiling sentiment.

Aluminum Market Summary:Macro perspective, the unpredictable policies of the Trump administration continue to weaken global confidence in US assets, while stable expectations for US Fed interest rate cuts drive sustained weakness in the US dollar index and improve market risk appetite, providing some support for aluminum prices. Domestically, the 2026 macro policy clearly focuses the driving force on strengthening the domestic circulation, aiming to continuously release endogenous economic growth momentum by comprehensively expanding domestic demand. Supply side, domestic and Indonesian aluminum projects continue to ramp up, with daily average production steadily increasing, sustaining the supply growth trend. Demand side shows signs of stabilization; after aluminum price fluctuations narrowed, the operating rate of downstream processing enterprises rebounded slightly, and warehouse withdrawals increased YoY supported by orders on hand. Last week, the comprehensive operating rate for aluminum processing recorded 60.9%, up 0. 7 percentage points WoW. Inventory side, social inventory on Monday this week increased by 28,000 mt compared to last Monday and by 34,000 mt compared to last Thursday, continuing the overall inventory buildup trend. The proportion of liquid aluminum continues to decline, reflecting still weak demand for liquid aluminum, with structural contradictions yet to be resolved. Overall, the easing of macro risk sentiment provides a temporary bottom support for aluminum prices, but high inventory levels cap the upside, suggesting SMM aluminum prices will mainly consolidate at high levels in the short term.

[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 to replace independent judgment. Any decisions made by clients are unrelated to SMM.]