Geopolitical Risks and Accelerated Seasonal Inventory Buildup Keep Aluminum Prices in the Doldrums [SMM Aluminum Morning Meeting Minutes]

2.11 SMM Morning Meeting Minutes

Futures:Last night, SHFE aluminum closed at 23,545 yuan/mt, flat, fluctuating rangebound throughout the day. The price hovered near the short-term moving average MA5 (23,460), but remained suppressed by MA10 (23,825) and MA30 (24,036.50), indicating a short-term bearish trend; medium and long-term, it stayed above MA60 (23,002.17), so the structure is not entirely broken. The MACD indicator's DIF (15.4058) and DEA (187.7066) maintained a deep bearish crossover, with the histogram at -344.6017, suggesting significant bearish momentum. The core trading range for SHFE aluminum is suggested at 23,300-23,800. LME aluminum closed at $3,105/mt in the night session, flat. The price fluctuated around MA5 (3,093.20), still under pressure below MA10 (3,104.95) and MA30 (3,129.13), with the short-term moving average system in a bearish alignment; however, medium and long-term, it held firmly above MA60 (3,003.09). The MACD indicator's DIF (9.5972) and DEA (24.2819) remained in a bearish crossover, with the histogram negative (-29.3695), continuing the bearish pattern. The core trading range for LME aluminum is suggested at 3,080-3,140.

Macro Front:US President Trump stated in an interview on Tuesday local time that if negotiations with Iran fail, he is considering sending an additional aircraft carrier strike group to the Middle East in preparation for potential military action. (Neutral★) Fed's Logan noted that the Fed's policy stance is just right; it may be close to a neutral level, neither stimulating nor restraining economic activity. (Neutral★)

Fundamentals:Supply side, the ramp-up of new domestic and overseas aluminum projects pushed up the daily average production. Demand side, production-wise, as the Chinese New Year holiday approaches, downstream processing enterprises began holidays successively, leading to a decline in operating rates and weakening demand; the proportion of liquid aluminum dropped 8.6 percentage points WoW. Trading-wise, after the absolute price of aluminum fell, traders' bullish sentiment supported an increase in procurement, narrowing spot discounts, and transactions showed slight recovery. However, the social inventory buildup trend persisted, with Monday's inventory up 21,000 mt WoW from last Thursday, gradually increasing inventory pressure; the post-holiday social inventory peak is expected to hit a new high in nearly three years.

Primary Aluminum Market:In the morning session, SHFE aluminum 2602 fluctuated downward, with the price center lower than the previous trading day. Affected by the upcoming holiday, overall market procurement sentiment was weak, prompting sellers to lower prices; mainstream transactions concentrated at discounts of 20 yuan/mt to 10 yuan/mt. This Tuesday, the east China market shipment sentiment index was 2.70, down 0.08 WoW; the purchase sentiment index was 2.50, down 0.11 WoW. On February 10, SMM A00 aluminum closed at 23,290 yuan/mt, down 110 yuan/mt from the previous trading day, at a discount of 190 yuan/mt against the 2602 contract, down 20 yuan/mt from the previous trading day. Trading in the central China market remained sluggish on Tuesday. As the Chinese New Year holiday approached, downstream processing enterprises had largely completed pre-holiday stockpiling, with only minimal just-in-time procurement and some traders buying the dip to stockpile. Suppliers initially showed weak willingness to hold prices firm on Tuesday, but amid sluggish trading, actual transaction prices in the central China market hovered around parity with the central China price to a discount of 20 yuan/mt. The supplier sentiment index in the central China market was 2.72 on Tuesday, down 0.01 MoM; the buying sentiment index was 2.16, down 0.01 MoM. SMM central China price closed at 23,170 yuan/mt, down 110 yuan/mt from the previous trading day, at a discount of 310 yuan/mt against the 2602 contract, down 20 yuan/mt from the previous trading day. The Henan-Shanghai price spread was -120 yuan/mt, flat from the previous trading day.

Secondary Aluminum Raw Materials:Spot primary aluminum prices edged down on Tuesday compared to the previous trading day, with SMM A00 aluminum closing at 23,290 yuan/mt, while aluminum scrap prices generally held steady. Baled UBC scrap was mainly offered at 16,800–17,250 yuan/mt (ex-tax) on Tuesday, and shredded aluminum tense scrap (priced based on aluminum content) was mainly offered at 19,000–19,700 yuan/mt (ex-tax). Prices in Shandong, Shanghai, Zhejiang, and Jiangsu adjusted slightly by 50–100 yuan/mt in line with aluminum prices, while prices in Jiangxi, Henan, and Guizhou remained stable. 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 3,493 yuan/mt on February 10, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,686 yuan/mt. Recently, directly impacted by recycling policies and forced to follow aluminum price hikes, the market has entered a state of "nominal prices without actual trading." Scrap utilization enterprises in related provinces were forced to reduce or halt production, and downstream buying sentiment was dampened, leading to purchasing as needed. Aluminum scrap prices are expected to fluctuate at highs this week, with shredded aluminum tense scrap (priced based on aluminum content) mainly trading in the range of 19,000–19,800 yuan/mt (ex-tax). Before the holiday, repeated environmental protection-related controls in Anhui, Henan, and Hebei, combined with high aluminum prices, provided a floor for aluminum scrap prices, while suppressed demand forced scrap utilization enterprises and scrap yards to enter the holiday early. The "nominal prices without actual trading" pattern is hard to change, and the tug-of-war between sellers and buyers continues. Close attention should be paid to the shutdown and resumption of downstream processing enterprises and the progress of environmental protection enforcement in various regions, while remaining vigilant against a continued sluggish trading atmosphere in the aluminum scrap market if aluminum prices pull back again.

Secondary Aluminum Alloy:In the futures market, the most-traded 2604 contract for aluminum alloy opened at 22,220 yuan/mt intraday. After opening, it once climbed above 22,300 yuan/mt but lacked upward momentum to hold firmly. During the session, prices fell rapidly, touching a low of 21,995 yuan/mt, with significantly amplified intraday fluctuations. In the afternoon, although there was a technical rebound, it always operated below the moving average system, with the rebound height being limited. It finally closed at 22,120 yuan/mt, down 105 yuan/mt from the previous close, a decline of 0.47%, mainly due to an increase in bearish positions. In the spot market, the A00 aluminum price fell by 110 yuan/mt to 23,290 yuan/mt compared to the previous trading day, while the SMM ADC12 price remained stable at 23,650 yuan/mt. As the Chinese New Year approaches, upstream and downstream enterprises in the secondary aluminum industry enter a concentrated holiday period, leading to a significant decrease in market liquidity, with actual transactions remaining sluggish. Spot quotations are mainly adjusted slightly around the futures. From the supply side, the pace of production halts at secondary aluminum enterprises is gradually unfolding, with furnace shutdowns mainly concentrated between February 5-13. Resumption of production is mostly scheduled for around the eighth day of the first lunar month or the Lantern Festival, with an expected production halt cycle of 8-20 days, which is longer YoY. Against the backdrop of unimproved demand, the fundamental support for prices continues to weaken, and the center of pre-holiday secondary aluminum alloy prices shows a slow downward trend, with short-term performance still in the doldrums at high levels.

Summary of the aluminum market: On the macro front, US President Trump's consideration to send additional carrier strike groups to the Middle East may trigger market concerns over geopolitical risks, indirectly affecting commodity market sentiment. However, as the US and Iran remain in negotiations, no clear directional guidance has been formed yet. US Fed officials stated that policy is approaching neutral, keeping market expectations for monetary easing stable. Nevertheless, the fundamentals are facing typical seasonal weakening pressures. On the supply side, new domestic and overseas aluminum projects continue to ramp up, with daily average production maintaining an upward trend, increasing supply pressure. The demand side enters the off-season before the Chinese New Year, with operating rates at downstream processing enterprises declining as they take holidays, significantly weakening consumption on the production side. Currently, the extent of aluminum ingot inventory buildup is expanding, and the market expects post-holiday inventory peaks to reach new highs in recent years, making visible inventory pressure a key realistic factor suppressing aluminum prices. In summary, under the combined effect of supply growth, seasonal demand pullback, and accelerated inventory buildup, aluminum prices are under pressure overall, expected to maintain a fluctuating trend in the doldrums in the short term, with limited rebound space.

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