Sentiment-Driven Retreat After Rapid Rise, Aluminum Prices Pull Back and Fluctuate at Highs [SMM Aluminum Morning Meeting Minutes]

January 30 SMM Morning Meeting Minutes

Futures:During the night session on January 29, the most-traded SHFE aluminum 2603 contract opened at 25,710 yuan/mt, hit a high of 26,185 yuan/mt, touched a low of 24,555 yuan/mt, and finally closed at 24,935 yuan/mt, down 655 yuan/mt or 2.56% from the previous close. From a technical perspective, the MA moving averages showed a bullish alignment (MA5: 25,129.61 > MA10: 24,884.90 > MA20: 24,583.65 > MA40: 24,160.86), and the MACD 4-hour candlestick continued to display red bars (DIFF: 341.88, DEA: 253.75). In terms of open interest, the night session open interest was approximately 318,000 lots, down 24,530 lots from the daytime session. LME aluminum opened at $3,285/mt, reached a high of $3,356/mt, touched a low of $3,191/mt, and finally closed at $3,233.5/mt, down 0.92% from the previous day. Trading volume was 61,100 lots, up 13,700 lots, while open interest stood at 700,000 lots, up 1,502 lots.

Macro Front:The US Treasury Department stated on Thursday that it would strengthen scrutiny of foreign exchange trading practices by various countries, including any attempts to prevent their currencies from depreciating against the US dollar, but did not accuse any major trading partners of currency manipulation. (Bullish ★) The US Senate failed to pass a funding bill, putting the US government at risk of another partial shutdown. On the 29th local time, the US Senate voted on a government funding bill; however, it did not pass as the number of affirmative votes fell short. The possibility of another partial shutdown of the US federal government at the end of this month due to depleted funds has significantly increased. (Bearish ★)

Fundamentals:According to SMM data on January 29, the real-time cost of aluminum remained basically stable during the week. As aluminum prices hit another record high, the real-time theoretical profit for aluminum surged by 1,137 yuan/mt WoW to 8,745 yuan/mt. The weekly proportion of liquid aluminum in domestic aluminum production was recorded at 72.64%, down 2.25 percentage points WoW, bringing the cumulative decline in the proportion of liquid aluminum in January to 3 percentage points.

Primary Aluminum Market:In the early session, the SHFE aluminum 2602 contract fluctuated downward, but the price center was significantly higher than the previous trading day. Due to high aluminum prices and the Chinese New Year break for downstream players, overall market purchase willingness remained weak. The mainstream transactions were concentrated at discounts of 10-30 yuan/mt. On Thursday this week, the east China market selling sentiment index was 2.75, down 0.01 WoW, while the purchasing sentiment index was 2.23, down 0.03 WoW. SMM A00 aluminum was quoted at 24,860 yuan/mt, up 600 yuan/mt from the previous trading day, at a discount of 200 yuan/mt against the 2602 contract, down 20 yuan/mt from the previous trading day. On Thursday this week, aluminum prices rose sharply. High aluminum prices suppressed restocking demand from processing enterprises, coupled with intensified environmental protection-driven production restrictions in central China. Downstream purchase willingness remained low. However, after the market opened, traders' hedging positions made substantial purchases to fill the gap, driving the premiums and discounts from extreme lows to a slight correction within a reasonable range. Additionally, there were significant differences in quotations between large and small traders. The final offers in the central China market ranged from a discount of 20 yuan to a discount of 80 yuan against the central China price, with actual transaction prices mainly between a discount of 30 yuan and a discount of 50 yuan against the central China price. On Thursday, the selling sentiment index in the central China market was 2.88, down 0.01 WoW; the buying sentiment index was 2.45, up 0.58 WoW. SMM's central China price closed at 24,690 yuan/mt, up 570 yuan/mt from the previous trading day, at a discount of 370 yuan/mt against the 2602 contract, down 50 yuan/mt from the previous trading day. The price spread between Henan and Shanghai was -170 yuan/mt, widening by 30 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials:On Thursday, spot primary aluminum prices continued to rise significantly compared to the previous trading day, with SMM A00 spot closing at 24,860 yuan/mt, and aluminum scrap prices generally followed the upward trend. On Thursday, baled UBC was mainly offered at 17,650-18,150 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was mainly offered at 19,800-20,500 yuan/mt (ex-tax). In terms of the price difference between A00 aluminum and aluminum scrap, the price difference between A00 aluminum and mixed aluminum extrusion scrap free of paint in Foshan was 3,633 yuan/mt on January 29, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,719 yuan/mt. Regions such as Shanghai, Jiangsu, Shandong, and Jiangxi closely followed the rise in aluminum prices, while Henan, Guizhou, Anhui, and Hunan adjusted prices more cautiously, increasing by 100-200 yuan/mt. Recently, directly affected by recycling policies and forced to follow the rise in aluminum prices, the market has shown a situation of "nominal prices without actual transactions." Scrap utilization enterprises in related provinces were forced to reduce or halt production, downstream purchasing sentiment was dampened, and procurement was conducted as needed. Aluminum scrap prices are expected to hover at highs next week, with shredded aluminum tense scrap (priced based on aluminum content) mainly ranging from 19,700 to 20,600 yuan/mt (ex-tax). Against the backdrop of primary aluminum's continuous rally and recycling policies restricting the liquidity of the aluminum scrap market, more bottom support will be provided for aluminum scrap prices. However, with repeated production restrictions in central China, persistently sluggish downstream operations, and the difficulty in changing the "nominal prices without actual transactions" pattern, stocking demand is hard to release, and the overall tug-of-war between sellers and buyers intensifies. Before the Chinese New Year, it is necessary to closely track the trend of primary aluminum, the progress of lifting environmental protection warnings in central China, and pre-holiday production halts, while remaining vigilant against a pullback in aluminum scrap prices driven by a retreat after rapid rise in aluminum prices. Market trading activity will remain sluggish.

Secondary Aluminum Alloy:On the futures side, the aluminum alloy 2603 contract opened at 23,710 yuan/mt on Thursday, with the futures generally fluctuating upward, reaching a high of 24,175 yuan/mt, setting a new high since listing, and finally closing at 23,850 yuan/mt, up 65 yuan/mt or 0.27% from the previous trading day, with the futures mainly driven by bears reducing positions. In the spot market, aluminum prices surged significantly on Thursday, with the A00 aluminum price rising by 600 yuan/mt from the previous day to 24,860 yuan/mt, and the SMM ADC12 price raised by 400 yuan/mt to 24,550 yuan/mt. Boosted by the futures, secondary aluminum enterprises generally followed with a 300-400 yuan/mt increase. However, the market's "price without demand" feature became more pronounced, with downstream players showing low acceptance of high aluminum prices, leading to sluggish transactions. Affected by this, the willingness for pre-holiday stockpiling among downstream enterprises was once again dampened, and some enterprises have planned to enter holiday mode early, fully revealing the weakness on the demand side. Overall, the current aluminum price has been significantly strengthened by macro sentiment and geopolitical disturbances, driving the price center of the secondary aluminum market upward. It is expected that prices will fluctuate at highs in the short term. However, one should be cautious of the risk of a pullback after a rapid rise, which may occur under weak fundamental support after the market sentiment is digested.

Summary of Aluminum Market Trends: The recent abnormal strengthening of SHFE aluminum prices is driven by three core factors: first, the escalation of US-Iran geopolitical conflicts has significantly disrupted the aluminum product trade; second, under the background of position limits in the precious metals market, funds are showing a trend of diverting to the base metal sector; third, expectations for production cuts at domestic alumina refineries have increased, further boosting the overall bullish market sentiment. The macro front remains strong, with the logic of a monetary easing cycle driven by expectations for US Fed interest rate cuts unchanged, and the US dollar index has fallen consecutively in the short term, continuously supporting nonferrous metal prices. On the supply side, domestic and Indonesian aluminum projects continue to ramp up smoothly, with daily average production steadily increasing, maintaining the trend of supply growth. Demand side performance is weak, with high aluminum prices suppressing purchase willingness among downstream enterprises, leading to expectations of a decline in operating rates, and the overall spot trades falling into a cold and watchful pattern; coupled with the ongoing inventory buildup, the conversion ratio of liquid aluminum continues to decrease, and the structural supply-demand imbalance in the industry has yet to be effectively alleviated. In summary, the current SHFE aluminum price has achieved a significant short-term surge driven by events and capital, with market trading sentiment in a phase of exuberance. Subsequently, one needs to be wary of the risks of sentiment cooling and market correction triggered by multiple factors.

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