Macro and Fundamentals Present a Mix of Positive and Negative Factors, Aluminum Prices Expected to Consolidate with Mainly Sideways Movement [SMM Aluminum Morning Meeting Minutes]

2.6 SMM Morning Meeting Minutes

Futures:On the night session of February 5, the most-traded SHFE aluminum 2603 contract opened at 23,390 yuan/mt, hit a high of 23,580 yuan/mt, a low of 23,255 yuan/mt, and finally closed at 23,570 yuan/mt, up 185 yuan/mt or 0.79% from the previous close. Prices at night session consistently fluctuated below the short-term moving averages, with the deviation widening, indicating strong short-term bearish momentum and significant resistance to a rebound. In terms of open interest, the night session open interest was about 206,000 lots, down 1,047 lots WoW from the daytime session. LME aluminum opened at $3,065/mt, hit a high of $3,075/mt, a low of $3,014.5/mt, and finally closed at $3,026/mt, down 1.08%. Trading volume was 25,000 lots, down 21 lots, and open interest was 699,000 lots, down 2,823 lots.

Macro Front:In the early hours of the 6th, local time in Oman, a delegation led by Iranian Foreign Minister Araghchi arrived in Muscat, the capital of Oman, to attend nuclear talks with a US delegation scheduled for the same day. (Neutral) Goldman Sachs expects the new Fed Chairman Wash to push for two interest rate cuts this year, rather than the rate hikes feared by the market; he will not push for a significant reduction in the Fed's balance sheet due to broad internal support for the "ample reserves" framework. (Bullish★)

Fundamentals: This week, the comprehensive operating rate for aluminum processing recorded 57.9%, down 1.5 percentage points WoW, showing overall stability with significant divergence among sectors. The operating rate of leading aluminum plate/sheet and strip enterprises rebounded to 66.0%, supported by the end of environmental protection-driven production restrictions and accelerated stockpiling and shipping before logistics suspensions, but demand support for can stock weakened, and a pullback is expected next week as stockpiling completes. The operating rate of leading aluminum foil enterprises rose to 71.4%, supported by the peak consumption season for food packaging foil and pharmaceutical foil, coupled with demand from the battery installation rush; leading enterprises plan to maintain production during the Chinese New Year holiday, keeping rates high. The operating rate for aluminum wire and cable dropped to 58%; although power grid orders were received, weak end-user cargo pick-up and losses led to a slowdown in shipments, enterprises gradually halted operations, and a further decline is expected next week. The operating rate for aluminum extrusion plummeted to 36.0%, as enterprises collectively entered the Chinese New Year holiday, but demand for PV extrusion remained firm, with leading enterprises in Anhui, Hebei, and other regions maintaining high operating rates and retaining some production lines.

Primary Aluminum Market:In the morning session, the SHFE aluminum 2602 contract fluctuated downward, with the price center lower than the previous trading day. Influenced by the decline in aluminum prices, overall market procurement sentiment rose, narrowing the overall market spot premiums/discounts. Mainstream transactions were concentrated at premiums of 20 yuan/mt to 30 yuan/mt. Today, the selling sentiment index in the east China market was 2.84, down 0.02 MoM; the purchasing sentiment index was 2.69, up 0.15 MoM. SMM A00 aluminum was offered at 23,340 yuan/mt, down 420 yuan/mt from the previous trading day, at a discount of 180 yuan/mt against the 2602 contract, up 30 yuan/mt from the previous trading day. Trading sentiment in the central China market weakened today, as end-use consumption softened and the Chinese New Year holiday is expected to begin, leading to a decline in raw material stockpiling demand from downstream processing enterprises. On the supply side, suppliers showed a strong willingness to hold prices firm and were reluctant to sell. Although the market dipped slightly, premiums and discounts remained high. Ultimately, actual transaction prices in the central China market ranged from a premium of 10 yuan/mt to a premium of 40 yuan/mt over the central China price. The supply sentiment index in the central China market today was 2.74, down 0.04 MoM; the purchasing sentiment index was 2.24, down 0.06 MoM. SMM central China closed at 23,240 yuan/mt, down 400 yuan/mt from the previous trading day, at a discount of 280 yuan/mt against the 2602 contract, up 50 yuan/mt from the previous trading day. The Henan-Shanghai price spread was -100 yuan/mt, narrowing by 20 yuan/mt from the previous trading day.

Aluminum Scrap:Spot primary aluminum prices retreated today compared to the previous trading day, with SMM A00 spot closing at 23,340 yuan/mt. Aluminum scrap prices generally followed the decline. Baled UBC was mainly offered at 16,850-17,300 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 3,560 yuan/mt on February 5, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,646 yuan/mt. Recently, directly impacted by recycling policies and forced to follow the rise in aluminum prices at highs, 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, and downstream buying sentiment was significantly dampened, leading to purchasing as needed. Aluminum scrap prices are expected to hover at highs next week, with the mainstream range for shredded aluminum tense scrap (priced based on aluminum content) at 19,000-19,800 yuan/mt (ex-tax). Before the holiday, repeated environmental protection-related controls in Anhui, Henan, Hebei, and other regions, combined with high aluminum prices, provided bottom support for aluminum scrap prices. Suppressed demand forced scrap utilization enterprises and aluminum scrap yards to enter the holiday early, making it difficult to change the "nominal prices without actual transactions" pattern, and the overall tug-of-war between sellers and buyers continues. It is necessary to closely monitor the shutdown and operation status of downstream processing enterprises and the progress of environmental protection enforcement in various regions, and be alert to the continued sluggish trading atmosphere in the aluminum scrap market if aluminum prices retreat again.

Secondary Aluminum Alloy:In the futures market, the aluminum alloy 2603 contract opened at 22,250 yuan/mt. The futures overall fluctuated downward, breaking below the 22,000 yuan/mt level, hitting a bottom of 21,860 yuan/mt during the day, and finally closed at 21,915 yuan/mt, down 680 yuan/mt or 3.01% from the previous close, mainly due to bulls reducing positions. In the spot market, the A00 aluminum price fell by 420 yuan/mt from the previous trading day to 23,340 yuan/mt, and the SMM ADC12 price dropped by 200 yuan/mt to 23,600 yuan/mt. Futures turned weak again, and secondary aluminum alloy market prices generally followed the decline, with most enterprises cutting prices by about 200 yuan/mt; driven by the price pullback, downstream buyers mainly restocked on dips, and transactions improved slightly. Supply side, as the Chinese New Year approaches, secondary aluminum plants have successively clarified their production plans for the holiday. Most enterprises will suspend production between February 5 and 13, with resumption times concentrated after the eighth day of the first lunar month or after the Lantern Festival. The expected furnace shutdown period is 8–20 days, with the average suspension time extending about 2 days YoY, mainly affected by factors such as intensified aluminum price fluctuations, widespread production cuts downstream, and tightening policies along with ongoing environmental protection-related controls. Overall, downstream demand continues to contract, and fundamental support for prices is marginally weakening. In the short term, secondary aluminum alloy prices are expected to hover at highs, with the price center dropping back slightly. On the import side, overseas ADC12 offers remained stable at $2,840–2,900/mt, while domestic spot prices pulled back to 22,700 yuan/mt. Due to firm overseas prices, the import advantage narrowed significantly, and immediate import profits turned to a slight loss.

Aluminum Market Summary:Macro perspective, domestically, the central bank conducted reverse repo operations to supplement liquidity, easing panic sentiment in the domestic commodity market; overseas, U.S.-Iran negotiations will be held in Oman, and geopolitical tensions eased somewhat, stabilizing macro sentiment. In terms of supply, new aluminum projects domestically and overseas ramping up production pushed up the daily average production. Demand side, on the production front, as the Chinese New Year holiday approaches, downstream processing enterprises have successively begun holidays, operating rates declined, and demand weakened. This week, the proportion of liquid aluminum dropped 8.6 percentage points WoW. Overall, under the impact of previous macro headwinds, substantial funds took profits and exited, aluminum prices pulled back, open interest decreased, and aluminum prices are expected to consolidate 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.]