Aluminium ingot inventory buildup pressure rises, aluminium prices mainly under pressure

Futures: Last Friday, SHFE aluminium night session closed at RMB 23,585  per tonne, up 0.98 per cent, fluctuating rangebound during the session. The price traded below the short-term moving averages, MA5 (23,610) and MA10 (24,118), under short-term pressure, but remained above the long-term MA60 (22,945.17), with the medium-term foundation intact. The MACD indicator's DIF (79.9094) and DEA (278.9238) showed a high-level death cross, with the histogram deeply negative (-398.0288), indicating significant downward momentum.

The suggested core trading range for SHFE aluminium is 23,400–24,000. LME aluminium night session closed at USD 3,110 per tonne, up 2.78 per cent, with notable gains. The price stood above MA60 (USD 2,991.28) but slightly below MA30 (USD 3,114.58), showing some repair in the medium-to-long-term structure, though short-term moving average pressure remains. The MACD indicator's DIF (14.0760) and DEA (36.3308) were in a death cross, but the negative histogram value (-44.5096) narrowed, suggesting weakening downward momentum. The suggested core trading range for LME aluminium is USD 3,080–USD 3,150.

Macro front: US President Trump signed an executive order threatening tariff hikes on countries purchasing goods and services from sanctioned Iran. The order took effect on February 7. It stated that the US deemed it necessary to impose tariffs, such as 25 per cent, on countries that directly or indirectly procure or import Iranian goods and services. (Bearish ★) The US announced a provisional trade agreement framework recently reached with India, under which India will eliminate or reduce tariffs on US industrial products and various food and agricultural items, while the US will lower the so-called reciprocal tariff rate on Indian goods from 25 per cent to 18 per cent. President Trump also signed an executive order deciding to cancel the additional 25 per cent tariff on Indian exports to the US, imposed based on India's direct or indirect imports of Russian oil, effective February 7. (Bullish ★)

Fundamentals: Supply side, domestic and overseas newly commissioned aluminium projects ramping up production pushed up the daily average production. Demand side, production end, as the Chinese New Year holiday approached, downstream processing enterprises began holidays successively, leading to a decline in operating rates and weakening demand; the proportion of liquid aluminium dropped 8.6 percentage points w-o-w. Trading ended after the absolute aluminium price fell; traders' bullish sentiment supported increased procurement, spot discounts narrowed, and transactions showed a slight recovery. However, the social inventory buildup trend continued, with Monday's inventory up 21,000 tonnes from last Thursday, and inventory pressure gradually increasing; the post-holiday social inventory peak is expected to hit a new high in nearly three years.

Primary aluminium market: In the morning session, SHFE aluminium 2602 fluctuated downward, with the price centre lower than the previous trading day. Affected by the decline in aluminium prices, overall market buying sentiment improved, leading to a narrowing of spot premiums and discounts across the market. The mainstream transaction prices were concentrated at a premium of RMB 10  per tonne to RMB 30  per tonne.

Last Friday, the shipment sentiment index in the east China market was 2.84, flat m-o-m; the purchasing sentiment index was 2.80, up 0.11 m-o-m. SMM A00 aluminium was quoted at RMB 23,340  per tonne, down RMB 420  per tonne from the previous trading day, at a discount of RMB 180  per tonne against the 2602 contract, up RMB 30  per tonne from the previous trading day. Last Friday, trading in the central China market tended to be sluggish. As the Chinese New Year holiday approaches, downstream processing plants are nearing completion of stockpiling, maintaining only small just-in-time procurement, with only some traders restocking on dips. Suppliers' willingness to collect payments by year-end weakened compared to the previous day, and market activity was sluggish. The actual transaction prices in the central China market finally hovered around parity to a premium of RMB 30  per tonne against the central China price. Last Friday, the shipment sentiment index in the central China market was 2.69, down 0.05 m-o-m; the purchasing sentiment index was 2.17, down 0.05 m-o-m. SMM central China closed at RMB 23,240  per tonne, down RMB 400  per tonne from the previous trading day, at a discount of RMB 280  per tonne against the 2602 contract, up RMB 50  per tonne from the previous trading day. The Henan-Shanghai price spread was -RMB 100  per tonne, narrowing by RMB 20  per tonne from the previous trading day.

Secondary aluminium raw materials: Last Friday, spot primary aluminium prices continued to pull back from the previous trading day, with SMM A00 spot closing at RMB 23,140  per tonne. Aluminium scrap prices generally held steady or followed with slight declines last Friday. Last Friday, baled UBC scrap was mainly quoted at RMB 16,700-17,150  per tonne (ex-tax), and shredded aluminium tensile scrap (priced based on aluminium content) was mainly quoted at RMB 18,900-19,600  per tonne (ex-tax). Regarding the price difference between A00 aluminium and aluminium scrap: on February 6, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 3,360  per tonne, and the price difference between A00 aluminium and shredded aluminium tensile scrap in Foshan was RMB 2,554  per tonne. Recently, directly impacted by recycling policies and against the backdrop of high aluminium prices forcing scrap prices to follow upward, a situation of "nominal prices without actual transactions" has emerged.

Scrap utilisation enterprises in related provinces were forced to reduce or halt production, downstream purchasing sentiment was significantly dampened, and procurement was conducted as needed. Aluminium scrap prices are expected to hover at highs next week, with the mainstream range for shredded aluminium tensile scrap (priced based on aluminium content) projected at RMB 19,000-19,800  per tonne (ex-tax). Before the holiday, repeated environmental protection-related controls in Anhui, Henan, Hebei, and other regions, combined with high aluminium prices, provided bottom support for aluminium scrap prices, while suppressed demand forced scrap utilisation enterprises and scrap yards to enter the holiday early. The pattern of "nominal prices without actual transactions" is difficult to change, and the overall tug-of-war between sellers and buyers continues. Close monitoring is required on the production halts and operational rates of downstream processing enterprises and the implementation progress of environmental protection measures in various regions, remaining vigilant against the possibility of continued sluggish trading in the aluminium scrap market if aluminium prices pull back again.

Secondary aluminium alloy: On the futures side, the aluminium alloy 2603 contract opened at RMB 21,945  per tonne, intraday showing a pattern of retreating after a rapid rise and fluctuating downward. In early trading, prices rebounded slightly, driven by sentiment recovery, but faced significant resistance at the RMB 22,000–22,150  per tonne level, failing to hold above it effectively. In the afternoon, as bulls accelerated position reductions, prices gradually pulled back and retested the previous low area. Overall, short-term rebound momentum remains insufficient, with futures still in a weak consolidation phase following the high-level pullback, and funds are mainly reducing positions and adopting a wait-and-see approach. In the spot market, A00 aluminium prices fell by RMB 200  per tonne from the previous trading day to RMB 23,140  per tonne, while SMM ADC12 prices edged down by RMB 50  per tonne to RMB 23,550  per tonne.

Last Friday, secondary aluminium market quotations showed some divergence, with some enterprises choosing to hold steady and observe, while others lowered their offers by about RMB 100  per tonne. Driven by the price decline, downstream procurement mainly focused on restocking at lower levels, and transaction activity improved slightly compared to the previous period. On the supply side, as the Chinese New Year approaches, production schedules for secondary aluminium plants during the holiday period are gradually being clarified. Most enterprises plan to suspend production between February 5 and 13, with resumption times concentrated mainly after the eighth day of the lunar new year or after the Lantern Festival. The expected shutdown period ranges from 8 to 20 days, with the average shutdown duration extending by about 2 days y-o-y. The lengthened shutdown period is partly due to recent intensified aluminium price fluctuations and partly influenced by generally weaker downstream demand, as well as stricter policies and ongoing environmental protection-related controls. Overall, downstream demand continues to contract, and fundamental support for prices is marginally weakening. Before the holiday, secondary aluminium alloy prices are expected to consolidate weakly at high levels, with the price centre dropping back slightly.

Aluminium market summary: On the macro front, the US threat of tariff hikes on countries involved in trade with Iran will disrupt global trade flows and suppress risk appetite, creating headwinds for aluminium prices. On the supply side, newly commissioned aluminium projects domestically and overseas continue to ramp up production, with daily average production maintaining an upward trend, sustaining supply pressure. On the demand side, the market has entered the pre-Chinese New Year off-season, as downstream processing enterprises gradually begin holidays, leading to a decline in operating rates and noticeably weaker consumption from the production side. Currently, the pace of aluminium ingot inventory buildup is accelerating, and market expectations indicate that post-holiday inventory peaks will reach multi-year highs.

Visible inventory pressure is gradually becoming a key practical factor suppressing aluminium prices. In summary, influenced by earlier macro headwinds, substantial capital exited with profits, leading to a decline in aluminium prices and a reduction in open interest. However, as precious metals did not show further downward trends, aluminium prices stabilised accordingly. In the short term, aluminium prices are expected to consolidate.

Note: This article has been issued by SMM and has been published by AL Circle with its original information without any modifications or edits to the core subject/data.