Macro Tug-of-War Between Longs and Shorts, Aluminum Prices Fluctuate Considerably at High Levels [SMM Aluminum Morning Meeting Minutes]

2.2 SMM Morning Meeting Minutes

Futures: During the night session on January 30, the most-traded SHFE aluminum 2603 contract opened at 24,365 yuan/mt, reached a high of 24,720 yuan/mt, touched a low of 24,240 yuan/mt, and finally closed at 24,600 yuan/mt, up 40 yuan/mt or 0.16% from the previous close. From a technical perspective, the MA moving averages showed a bullish alignment (MA5: 24,939 > MA10: 24,536 > MA20: 24,416.25 > MA30: 23,805.17), and the MACD 4-hour candlestick level continued to show red bars (DIFF: 266.41, DEA: 263.64). In terms of open interest, the night session open interest was approximately 275,000 lots, down 9,950 lots from the daytime session. LME aluminum opened at $3,240/mt, reached a high of $3,241/mt, touched a low of $3,057/mt, and finally closed at $3,135.5/mt, down 3.03% from the previous day. Trading volume was 58,000 lots, down 31.3 million lots, while open interest was 701,000 lots, up 693 lots.

Macro Front: On January 30, US President Donald Trump nominated former Fed Governor Kevin Warsh to serve as the next Fed Chairman. That same day, international precious metals markets experienced a crash-like plunge. (Bearish ★) On January 30, US President Donald Trump warned that the fleet size heading towards Iran was "even larger than the fleet deployed in Venezuela," but he left the door open for a deal with Tehran. (Bullish ★) On January 30, the National Development and Reform Commission (NDRC) and the National Energy Administration issued the "Notice on Improving the Capacity Price Mechanism on the Generation Side." It proposed that regions with a high proportion of new energy installations and large reliable capacity requirements should accelerate the establishment of a reliable capacity compensation mechanism; the proportion of fixed costs recovered for coal power units through the capacity price mechanism should be increased to no less than 50%; and a capacity price mechanism for grid-side independent new-type energy storage should be established. (Neutral)

Fundamentals: According to SMM statistics, domestic aluminum production in January 2026 (31 days) increased by 2.7% YoY and 0.5% MoM. The overall operating rate of downstream sectors showed a downward trend during the month, and the proportion of liquid aluminum declined in sync, dropping 4.4 percentage points MoM to 72.1%, a decrease larger than expected at the beginning of the month. The main reasons include: 1) Under the influence of the off-season, demand had not yet recovered, coupled with some downstream plants taking an early Chinese New Year break; 2) Aluminum prices generally fluctuated at highs in January, putting pressure on downstream profit margins, leading to an overall decline in the operating rate; 3) Repeated environmental protection-driven production restrictions in some regions constrained raw material demand. Based on SMM's proportion of liquid aluminum data, domestic aluminum casting ingot volume in January decreased by 5.9% YoY but increased by 19.4% MoM.

Primary Aluminum Market: In the early session, the SHFE aluminum 2602 contract fluctuated downward, with its price center lower than the previous trading day. Affected by high aluminum prices and the Chinese New Year break at downstream enterprises, overall market buying sentiment remained weak. The mainstream market transactions were concentrated at a discount of 10-30 yuan/mt against the A00 aluminum price. Last Friday, the selling sentiment index in east China was 2.53, down 0.22 WoW; the buying sentiment index was 2.13, down 0.1 WoW. SMM A00 aluminum was quoted at 24,660 yuan/mt, down 200 yuan/mt from the previous trading day, at a discount of 210 yuan/mt against the Feb 2026 contract, down 10 yuan/mt from the previous trading day. Aluminum prices pulled back after a rapid rise, and the latest round of environmental protection-related controls in Henan province was nearing its end. Downstream processing enterprises took the opportunity to restock slightly, and traders continued to purchase actively for hedging purposes, leading to a slight improvement in market buying sentiment. The actual transaction prices in central China eventually stabilized at a discount of 20-40 yuan/mt against the central China price. Last Friday, the selling sentiment index in central China was 2.91, up 0.02 WoW; the buying sentiment index was 2.46, up 0.01 WoW. SMM central China price closed at 24,480 yuan/mt, down 210 yuan/mt from the previous trading day, at a discount of 390 yuan/mt against the Feb 2026 contract, down 20 yuan/mt from the previous trading day. The price spread between central China and Shanghai was -180 yuan/mt, widening by 10 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials:Spot primary aluminum prices fell last Friday compared to the previous trading day, with the SMM A00 spot price closing at 24,660 yuan/mt. Aluminum scrap prices generally pulled back last Friday. Last Friday, baled UBC was mainly quoted at 17,650-18,150 yuan/mt (ex-tax), and shredded aluminum tense scrap (priced based on aluminum content) was mainly quoted at 19,800-20,500 yuan/mt (ex-tax). 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 4,088 yuan/mt on Jan 30, and the price difference between A00 aluminum and shredded aluminum tense scrap was 3,174 yuan/mt. Following the sharp overnight drop in SHFE aluminum yesterday and the downward fluctuation and pullback during the day last Friday, the closing decline reached 3.45%. Regions including Shanghai, Jiangsu, Shandong, and Jiangxi adjusted following the aluminum price, with pullback ranges varying from 300-600 yuan/mt. Recently, directly impacted 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 buying sentiment was dampened, and purchasing was conducted as needed. Aluminum scrap prices are expected to hover at highs this week, with shredded aluminum tense scrap (priced based on aluminum content) mainly ranging between 19,700-20,600 yuan/mt (ex-tax). Against the backdrop of persistently high primary aluminum prices, coupled with recycling policies constraining 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 and persistently low downstream operating rates, the "nominal prices without actual transactions" supply-demand pattern is difficult to change, 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 and breaks. Be cautious of aluminum prices retreating after a rapid rise, which could lead to a pullback in aluminum scrap, and market trading activity will remain sluggish.

Secondary Aluminum Alloy: In the futures market, the 2603 aluminum alloy contract opened at 23,270 yuan/mt last Friday. The overall trend continued to be in the doldrums from the night session, closing at 22,820 yuan/mt, a decrease of 1,030 yuan/mt or 4.32% compared to the previous trading day, with the main activity being bulls reducing their positions. In the spot market, aluminum prices saw a significant correction on Friday, with A00 aluminum prices falling by 200 yuan/mt to 24,660 yuan/mt, and SMM ADC12 prices also dropping by 200 yuan/mt to 24,350 yuan/mt. Some manufacturers attempted to hold prices firm before noon, limiting the decline in quotes; however, as the futures market continued to fall, the sentiment to hold prices firm dissipated, leading to a widespread price drop. In terms of transactions, downstream restocking willingness was low, maintaining only just-in-time procurement. The widening spot-futures price spread led to improved trader activities. As Chinese New Year approaches, downstream demand is expected to contract, providing limited fundamental support. However, with high aluminum scrap costs and a temporary tightening of supply, the downside room for prices is constrained. It is expected that secondary aluminum alloy prices will fluctuate at highs in the short term. On the import front, overseas ADC12 quotes remain at $2,900–$2,950/mt, relatively firm compared to domestic prices, narrowing the immediate profit margin for imports to around 300 yuan/mt.

Summary of Aluminum Market Trends: Overall, recent SHFE aluminum prices have strengthened abnormally, driven by three key factors: first, the escalation of US-Iran geopolitical tensions has significantly disrupted aluminum product trade; second, under the backdrop of position limits in the precious metals market, there is a trend of capital flowing into the base metal sector; third, expectations for production cuts at domestic alumina refineries have increased, further boosting the overall bullish sentiment. The macro front remains strong, with the logic of a monetary easing cycle driven by expectations for US Fed interest rate cuts unchanged. The US dollar index has fallen consecutively in the short term, continuously supporting non-ferrous metal prices. From the supply side, domestic and Indonesian aluminum projects continue to ramp up smoothly, with daily average production steadily increasing, and the trend of supply growth continues. Demand performance is weak, with high aluminum prices suppressing purchase willingness among downstream enterprises, leading to an expected decline in operating rates. Overall, the spot market is in a cold and watchful state, coupled with ongoing inventory buildup, and a continuous decline in the proportion of liquid aluminum conversion, the industry's supply-demand imbalance has not been effectively alleviated. In summary, the current SHFE aluminum price surge is driven by event-driven and capital-driven factors, with market sentiment in a temporarily euphoric state. Caution is advised against potential cooling of sentiment and market correction risks due to 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 rely solely on this information, as any decision made by clients is unrelated to SMM.]