Expectations for US Fed Interest Rate Hold Heat Up, Aluminum Prices Expected to Move Sideways in Short Term [SMM Aluminum Morning Meeting Minutes]

February 25 SMM Morning Meeting Minutes

Futures: During the night session on February 24, the most-traded SHFE aluminum 2604 contract opened at 23,580 yuan/mt, reached a high of 23,710 yuan/mt, touched a low of 23,535 yuan/mt, and finally closed at 23,550 yuan/mt, down 85 yuan/mt or 0.36% from the previous close. From a technical perspective, the moving averages showed a bearish alignment, with SMA5 (23,539.09) < SMA10 (23,574.99) < SMA20 (23,705.11) < SMA40 (23,824.73). The 4-hour MACD candlestick was in a crossover state (DIFF: -167.20, DEA: -167.18). In terms of open interest, the night session open interest was approximately 231,000 lots, an increase of 13,979 lots from the daytime session. LME aluminum opened at $3,097.0/mt, reached a high of $3,127.5/mt, touched a low of $3,090.0/mt, and closed at $3,110.5/mt, up 0.63% from the previous day. Trading volume was 17,958 lots, up 4,826 lots, and open interest was 675,000 lots, an increase of 6,516 lots.

Macro Front: According to CME's "FedWatch": the probability of the US Fed cutting interest rates by 25 basis points in March is 2.0%, while the probability of keeping rates unchanged is 98.0%. The probability of a cumulative 25-basis-point rate cut by April is 15.9%, the probability of keeping rates unchanged is 83.8%, and the probability of a cumulative 50-basis-point cut is 0.3%. The probability of a cumulative 25-basis-point cut by June is 42.7%. (Bearish ★) Fed official Collins stated that recent employment data is encouraging; the job market softened last year but was not weak; although the job market appears fragile, its stability may have improved; she is seeking more evidence to confirm that the disinflation process has restarted; her baseline view is that inflation should pull back later this year. (Bearish ★)

Fundamentals: According to the latest market news: South32 Limited offered its MJP long-term contract for delivery to Japan in Q2 2026 at $220/mt, valid until February 27, 2026. On February 19, 2026, Century Aluminum released its Q4 2025 results. The report showed that Century Aluminum's primary aluminum shipments in Q4 2025 decreased 14% QoQ, mainly due to production declines caused by equipment failure at its Iceland smelter. Looking ahead to 2026, the 50,000 mt idle capacity at the Mt. Holly smelter is expected to resume production in April, reaching full capacity by the end of Q2; the Iceland smelter is expected to restart earlier than originally planned, with production resumptions scheduled to begin by the end of April 2026 and reach near full capacity by the end of July. According to data from the China Chamber of Commerce for Motorcycles, China's motorcycle industry got off to a good start in January, with both production and sales showing significant growth YoY and MoM; foreign trade exports continued the strong growth trend from the previous year, with monthly export volume hitting a multi-year high.

Primary Aluminum Market:SHFE aluminum 2602 fluctuated upward in the morning session, with the price center higher than the previous trading day. Influenced by the rise in SHFE aluminum prices, overall purchase sentiment still lagged behind shipment sentiment. However, overall, affected by the end of the Chinese New Year holiday, transaction sentiment rose compared to the last pre-holiday trading day. Mainstream market quotations concentrated between a discount of 20 yuan/mt and the average price. On Tuesday this week, the shipment sentiment index in the east China market was 2.34, up 0.34 WoW; the purchase sentiment index was 2.31, up 0.25 WoW. SMM A00 aluminum closed at 23,390 yuan/mt, up 230 yuan/mt from the previous trading day, at a discount of 160 yuan/mt against the 2602 contract, down 40 yuan/mt from the previous trading day; at a discount of 210 yuan/mt against the 2603 contract. With the Chinese New Year holiday ended, traders and downstream enterprises in central China resumed work gradually. Significant inventory buildup of aluminum ingots and post-holiday work resumption drove a noticeable rebound in shipment and purchase willingness among traders and processing enterprises. However, as the holiday was not completely over, some traders adopted a wait-and-see stance, and market transactions remained sluggish. Final actual transaction prices in the central China market hovered between a discount of 20 yuan and a premium of 20 yuan against the central China price, with premiums and discounts declining as aluminum prices rose. On Tuesday this week, the shipment sentiment index in the central China market was 2.52, up 0.27 WoW; the purchase sentiment index was 2.14, up 0.24 WoW. SMM central China closed at 23,310 yuan/mt, up 230 yuan/mt from the previous trading day, at a discount of 240 yuan/mt against the 2602 contract, down 40 yuan/mt from the previous trading day; at a discount of 290 yuan/mt against the 2603 contract. The Henan-Shanghai price spread was -80 yuan/mt, flat from the previous trading day.

Aluminum Scrap:Spot primary aluminum on Tuesday this week rose compared to the last trading day before the Spring Festival, with SMM A00 spot closing at 23,390 yuan/mt. Aluminum scrap prices followed the increase overall on Tuesday this week. On Tuesday this week, baled UBC was quoted in the range of 16,800-17,250 yuan/mt (ex-tax), while shredded aluminum tense scrap (priced based on aluminum content) was quoted in the range of 19,100-19,800 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 3,475 yuan/mt on February 24, and the price difference between A00 aluminum and shredded aluminum tense scrap was 2,669 yuan/mt. High aluminum prices suppressed downstream demand; downstream aluminum processing enterprises had low stockpiling willingness, and stockpiling volume decreased significantly compared to previous years. Additionally, the Chinese New Year holiday period was longer than in 2025. Aluminum scrap prices are expected to hover at highs this week, with downstream demand difficult to recover quickly. The mainstream operating range for shredded aluminum tense scrap (priced based on aluminum content) is still expected to hover around 19,000-19,800 yuan/mt (ex-tax). As holidays for aluminum scrap yards and some scrap utilization enterprises have not ended, constraints on new scrap recycling persist, leading to tight release of supply. Combined with high aluminum prices, this provides bottom support for aluminum scrap prices. Furthermore, downstream demand decreased compared to January, and market transactions are expected to remain sluggish. The supply-demand stalemate with both sides weak is likely to continue in the short term, with transactions mainly for rigid restocking needs. Need to closely monitor the resumption pace of downstream processing enterprises after the holiday, and be vigilant against the potential for market sentiment to heat up again due to expectations of post-holiday resumptions, which could in turn push up aluminum prices and lead to a persistently sluggish trading atmosphere in the aluminum scrap market.

Secondary Aluminum Alloy: In terms of futures, on the first trading day after the holiday, the 2604 aluminum alloy opened at the lowest point of 22,070 yuan/mt. In the morning session, market sentiment was strong, pushing the price up to 22,460 yuan/mt. Subsequently, the futures moved sideways, fluctuating between 22,000-22,350 yuan/mt in the afternoon, and closed at 22,320 yuan/mt, up 1.27% from the last trading day before the holiday. During the day, bears mainly reduced their positions, with the overall market still in a consolidation phase following the previous decline. On the spot side, the A00 aluminum price rose by 230 yuan/mt to 23,390 yuan/mt, and the SMM ADC12 price was raised by 100 yuan/mt to 23,750 yuan/mt. The strong performance of the futures on the first trading day after the holiday led to a recovery in market sentiment, but there was some divergence in the quotations from secondary aluminum enterprises. Some companies, considering that downstream operations had not fully resumed, maintained pre-holiday quotation ranges, adopting a wait-and-see approach; others took the opportunity to raise their prices by 100 yuan/mt. The market inquiry atmosphere gradually recovered, but actual transactions remained relatively low, with the market still primarily in a wait-and-see mode. As the shutdown period for secondary aluminum plants this year was slightly longer than last year, most enterprises are expected to resume production between the eighth and fifteenth days of the first lunar month, leading to a slower release of supply in the first week after the holiday, providing temporary support to prices. However, demand recovery is likely to be more gradual, with downstream purchases remaining cautious and based on need until terminal orders significantly increase. Cost side, it is necessary to continuously pay attention to the price fluctuations of aluminum scrap, copper, silicon, and other auxiliary materials, as the trend of primary aluminum remains a key variable influencing market sentiment and the price center. Overall, in the early post-holiday period, the ADC12 price is likely to continue the sideways movement pattern seen before the holiday. The subsequent direction will depend on the match between supply and demand after full production resumptions and the performance of primary aluminum prices. If there is a phased restocking combined with a strong performance of primary aluminum, there is room for price recovery; otherwise, prices may face slight pressure, but the overall trend will still be characterized by sideways movement.

Summary of the Aluminum Market: Overall, from a macro perspective, the current rise in expectations for US Fed interest rate hikes has boosted the US dollar, while geopolitical tensions between the US and Iran and tariff policies have increased risk aversion. Coupled with a slowdown in the resilience of the US economy and a weak recovery in the Eurozone, the global macro environment is characterized by a delicate balance and high volatility. Seasonal weakening pressures on the fundamentals have become more pronounced. On the supply side, new electrolysis aluminum projects both domestically and overseas are steadily ramping up production. On the demand side, attention should be paid to the resumption pace of downstream enterprises after the holiday. Currently, under the influence of seasonal oversupply, the market generally expects post-holiday inventory to peak at 1.3 million mt, reaching a five-year high, which will be the core factor suppressing prices. Overall, aluminum prices are expected to move sideways in the short term.

[The information provided is for reference only. This article does not constitute direct advice for investment research decisions. Clients should exercise caution and not use it to replace independent judgment. Any decisions made by clients are unrelated to SMM.]