Aluminum Prices Edged Up Overnight as U.S.-Iran Tensions Briefly Escalated [SMM Aluminum Morning Meeting Minutes]

2.4 SMM Morning Meeting Minutes

Futures:During the night session on February 3, the most-traded SHFE aluminum 2603 contract opened at 23,810 yuan/mt, reached a high of 23,960 yuan/mt, touched a low of 23,805 yuan/mt, and finally closed at 23,865 yuan/mt, up 55 yuan/mt or 0.23% from the previous close. In the short term, the technical picture showed a "rebound from lows + momentum repair," but the rebound height was constrained by moving average resistance and insufficient trading volume. A breakthrough above 24,000 yuan/mt is needed for the rebound to continue; otherwise, prices may fluctuate at lows again. Regarding open interest, night session open interest was about 231,000 lots, an increase of 4,669 lots from the daytime session. LME aluminum opened at $3,070/mt, reached a high of $3,124.5/mt, touched a low of $3,042/mt, and finally closed at $3,099/mt, up 1.39%. Trading volume was 33,000 lots, a decrease of 20.21 million lots, while open interest was 704,000 lots, an increase of 1,153 lots.

Macro Front:US-Iran Confrontation Briefly Intensified,On February 3 local time, a UK maritime security company stated that the US-flagged tanker "Stena Imperative" was "once approached by multiple Iranian gunboats" in the Strait of Hormuz. US White House Press Secretary Levitt said in an interview on the 3rd that the US Central Command's action of shooting down an Iranian drone that day was "appropriate," and that negotiations between the US and Iran scheduled for later this week would still proceed. (Bullish ★) The central bank announced that to maintain ample liquidity in the banking system, it would conduct 800 billion yuan in outright reverse repo operations on February 4, with a maturity of three months. (Bullish ★) The China Nonferrous Metals Industry Association stated that it is studying the inclusion of copper concentrates with large trading volumes and easy liquidity into the reserve scope. (Neutral)

Fundamentals: Inventory side, on February 3, aluminum ingot inventories in three major domestic locations increased by 15,000 mt MoM, with the main sources of inventory buildup being Wuxi and Gongyi areas. In the short term, high aluminum prices will continue to suppress end-use demand. According to SMM, some aluminum processing enterprises for extrusions, cables, etc., plan to extend their Chinese New Year break this year, and aluminum ingots face the risk of further inventory buildup.

Primary Aluminum Market:In the early session, the SHFE aluminum 2602 contract moved erratically, with the price center lower than the previous trading day. Affected by the decline in aluminum prices, overall market purchasing sentiment saw a slight increase. However, limited by the approaching Chinese New Year holiday, overall downstream purchasing sentiment remained at a relatively low level. Mainstream market transactions were concentrated between a discount of 10 yuan/mt and a premium of 10 yuan/mt. This Tuesday, the selling sentiment index in the East China market was 2.74, up 0.11 WoW; the buying sentiment index was 2.35, up 0.16 WoW. SMM A00 aluminum closed at 23,290 yuan/mt, down 410 yuan/mt from the previous trading day, at a discount of 220 yuan/mt against the 2602 contract, flat from the previous trading day. On Tuesday, aluminum prices continued to decline from the previous day. Downstream aluminum processing enterprises in central China were expected to begin the Chinese New Year holiday, reducing their willingness to stock up on raw materials. However, traders' bullish sentiment supported purchasing demand, and overall buying sentiment strengthened slightly. On the selling side, holders mainly adopted a wait-and-see approach, and overall selling sentiment was flat WoW from Monday. The actual transaction prices in the central China market finally ranged from a premium of 10 yuan/mt to a premium of 60 yuan/mt to the central China price. The selling sentiment index in the central China market on Tuesday was 2.75, flat WoW; the purchasing sentiment index was 2.30, up 0.05 WoW. SMM central China price closed at 23,160 yuan/mt, down 370 yuan/mt from the previous trading day, at a discount of 350 yuan/mt against the 2602 contract, narrowing by 40 yuan/mt from the previous trading day. The Henan-Shanghai price spread was -130 yuan/mt, narrowing by 40 yuan/mt from the previous trading day.

Secondary Aluminum Raw Materials:On Tuesday, spot primary aluminum prices continued to decline from the previous trading day, with the SMM A00 spot price closing at 23,290 yuan/mt. Aluminum scrap prices generally followed the decline on Tuesday. Baled UBC was mainly offered at 16,700-17,100 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was mainly offered at 18,900-19,600 yuan/mt (ex-tax). Regarding 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 3,530 yuan/mt on February 3, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,616 yuan/mt. After spot aluminum prices fell for three consecutive days, prices in Shanghai, Jiangsu, Shandong, and Jiangxi followed the aluminum price adjustment, with pullbacks ranging from 200-500 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. 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 19,100-20,000 yuan/mt (ex-tax). Against the backdrop of persistently high primary aluminum prices and recycling policies constraining the liquidity of the aluminum scrap market, aluminum scrap prices will receive more bottom support. However, with repeated production restrictions in central China, persistently sluggish downstream operations, 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 has intensified. 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. Be alert to aluminum prices retreating after a rapid rise, which could lead to a pullback in aluminum scrap, and market trading atmosphere will remain sluggish.

Secondary Aluminum Alloy:On the futures side, the aluminum alloy 2603 contract opened at 22,180 yuan/mt, retreated after a rapid rise in the morning session, and fell with high volume to around 21,680 yuan/mt in the afternoon session. It recovered somewhat in the late session but overall remained weak. It finally closed at 22,830 yuan/mt, up 45 yuan/mt or 0.20% from the previous close, primarily driven by bears reducing their positions. In the spot market, the A00 aluminum price fell by another 410 yuan/mt from the previous trading day to 23,290 yuan/mt, while the SMM ADC12 price was lowered by 200 yuan/mt to 23,650 yuan/mt. As futures continued their decline, secondary aluminum market quotations generally followed the downward trend, though the extent of price cuts varied among producers. Demand side, market purchasing sentiment improved slightly compared to earlier, but downstream buyers remained largely watchful amid expectations of further price declines. Coupled with heightened short-term price volatility, pre-holiday stockpiling willingness stayed low. Supply side, as the Chinese New Year holiday approaches, some secondary aluminum plants have scheduled early holiday shutdowns starting from the 5th, affected by reduced orders and environmental protection-related controls. The overall holiday duration is expected to be longer than the same period in previous years. Overall, with downstream demand continuing to weaken and raw material costs declining, fundamental support for prices has weakened. In the short term, secondary aluminum alloy prices may remain in the doldrums. On the import front, overseas ADC12 offers held steady at $2,840–2,900/mt on Tuesday, while domestic spot prices fell to around 22,700 yuan/mt, narrowing the immediate import profit to within 100 yuan.

Aluminum Market Summary:Macro front, domestic macro fundamentals are generally positive, while U.S.-Iran tensions briefly escalated, and geopolitical conflicts expanded further. Demand side, purchasing sentiment improved slightly due to falling aluminum prices, but remained subdued overall as the Chinese New Year holiday neared. Coupled with continued inventory buildup across the industry and a declining proportion of liquid aluminum conversion, structural supply-demand imbalances in the sector have yet to be effectively alleviated. Overall, short-term volatility risks have increased significantly for SHFE aluminum and nonferrous metals markets. Future prices may still be affected by factors such as a shift in US Fed policy, and further amplification of fluctuations cannot be ruled out. Close attention should be paid to market dynamics and regulatory policy changes, with rational, compliant trading and prudent control of positions and risks advised.

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