During the night session, SHFE aluminium fluctuated and pulled back to close lower. In the short term, aluminium prices are expected to maintain a consolidation pattern

Futures: On the night session of February 4, the most-traded SHFE aluminium 2603 contract opened at RMB 23,800 per tonne, rose after opening, hit a high of RMB 23,900 per tonne, then pulled back, touched a low of RMB 23,625 per tonne, and fluctuated in consolidation toward the close, eventually closed at RMB 23,690 per tonne, down 1.11 per cent from the previous close. The short-term technical picture showed a "rebound from lows + momentum repair," but resistance from moving averages and insufficient volume constrained the rebound's height. A breakout above RMB 24,000 per tonne is needed for the rebound to continue; otherwise, prices may fluctuate at lows again.

In terms of open interest, night session open interest was about 217,000 lots, down 7,603 lots from the daytime session. The slight decrease in open interest indicated some bulls took profits during the rebound, and funds did not enter on a large scale, so the rebound's sustainability needs verification. LME aluminium opened at USD 3,108.5 per tonne, hit a high of USD 3,134 per tonne, a low of USD 3,050 per tonne, and finally closed at USD 3,059 per tonne, down 1.29 per cent. Trading volume was 25,000 lots, down 81.84 million lots, and open interest was 702,000 lots, up 2,182 lots.

Macro front: Iranian Foreign Minister Araghchi clarified Iran's official stance on talks with the US in Oman, stating negotiations will take place around 10:00 AM on the 6th in Muscat, the capital of Oman. (Neutral) US Treasury Secretary Besant said, "We always support a strong dollar policy" and will not relax financial regulations "at all costs." (Bearish ★) On the evening of February 4, President Xi Jinping spoke with US President Trump by phone. Trump said the US is willing to strengthen cooperation with China to promote new developments in bilateral relations, values China's concerns on the Taiwan issue, and is willing to maintain communication with China to keep US-China relations good and stable during his term. (Neutral)

Fundamentals: Inventory side, today's social inventory of aluminium ingots in the region increased by 19,000 tonnes w-o-w from Monday, with the main sources of inventory buildup being Wuxi and Gongyi. In the short term, high aluminium prices may continue to suppress end-use demand, coupled with the impact of the Chinese New Year break on downstream sectors. Some aluminium processing enterprises for extrusions, cables, etc., plan to extend the Chinese New Year break this year. aluminium ingots still face inventory buildup risks, and spot premiums per discounts are expected to remain under pressure.

Primary aluminium market: In the morning session, SHFE aluminium 2602 fluctuated upward, with the price center higher than the previous trading day. Due to the slow rise after aluminium prices hit limit down, overall bullish sentiment among downstream players rose somewhat. Buying sentiment increased somewhat this Wednesday, with mainstream market transactions concentrated at parity to a premium of RMB 30 per tonne. This Wednesday, the selling sentiment index in the east China market was 2.85, up 0.12 w-o-w; the purchasing sentiment index was 2.54, up 0.20 w-o-w. SMM A00 aluminium closed at RMB 23,760 per tonne, up RMB 470 per tonne from the previous trading day, at a discount of RMB 210 per tonne against the 2602 contract, up RMB 10 per tonne from the previous trading day.

On Wednesday, pre-holiday stockpiling by downstream processing enterprises in the central China market neared its end, and weakening end-use consumption reduced purchase willingness among processors. The rebound in aluminium prices also dampened traders' demand for restocking on dips. Overall buying sentiment weakened in the central China market, while some suppliers increased their willingness to sell due to year-end payment collection needs. Ultimately, actual transaction prices in the central China market ranged from parity to a premium of RMB 30 per tonne against the central China price. The selling sentiment index in the central China market on Wednesday was 2.78, up 0.03 w-o-w; the buying sentiment index was 2.28, down 0.02 w-o-w. SMM central China price closed at RMB 23,640 per tonne, up RMB 480 per tonne from the previous trading day, at a discount of RMB 330 per tonne against the 2602 contract, up RMB 20 per tonne from the previous trading day. The Henan-Shanghai price spread was -RMB 120 per tonne, narrowing by RMB 10 per tonne from the previous trading day.

Secondary aluminium raw materials: On Wednesday, spot primary aluminium prices stopped falling and rebounded compared to the previous trading day, with SMM A00 spot aluminium closing at RMB 23,760 per tonne. aluminium scrap prices actively followed the rise on Wednesday. Baled UBC was mainly offered at RMB 16,900-17,300 per tonne (ex-tax), while shredded aluminium tense scrap (priced based on aluminium content) was mainly offered at RMB 19,100-19,800 per tonne (ex-tax). Regarding the price difference between A00 aluminium and aluminium scrap, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 3,775 per tonne on February 4, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 2,861 per tonne. aluminium scrap prices in Shanghai, Jiangsu, Shandong, Jiangxi, and other regions closely followed aluminium price adjustments, with pullbacks ranging from RMB 200-500 per tonne.

Recently, directly affected by recycling policies and forced to follow rising aluminium 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, downstream purchasing sentiment was significantly dampened, and procurement was conducted as needed. aluminium scrap prices are expected to hover at highs this week, with shredded aluminium tense scrap (priced based on aluminium content) mainly ranging from RMB 19,100-20,000 per tonne (ex-tax). Against the backdrop of persistently high primary aluminium prices, coupled with recycling policies restricting aluminium scrap market liquidity, more bottom support will be provided for aluminium scrap prices. However, repeated production restrictions in central China and persistently low downstream operating rates make it difficult to change the "nominal prices without actual transactions" pattern. Stocking demand is hard to release, and the overall tug-of-war between sellers and buyers intensifies. Before the Chinese New Year, close tracking of primary aluminium trends, the progress of lifting environmental protection warnings in central China, and pre-holiday production halts and holidays is necessary. Be cautious of aluminium prices retreating after a rapid rise leading to aluminium scrap pullbacks; market trading atmosphere will remain sluggish.

Secondary aluminium alloy: On the futures side, the aluminium alloy 2603 contract opened at RMB 22,310 per tonne, fluctuated around the RMB 22,400 per tonne level, and surged again towards the close, finally settling at the day's high of RMB 22,595 per tonne, up RMB 380 per tonne or 1.71 per cent from the previous close, mainly driven by bears reducing positions. On the spot market, the price of A00 aluminium rebounded sharply by RMB 470 per tonne from the previous trading day to RMB 23,760 per tonne, while the SMM ADC12 price increased by RMB 150 per tonne to RMB 23,800 per tonne. Futures showed a noticeable rebound, but secondary aluminium alloy plants’ quotations diverged: some enterprises raised their offers by RMB 200 per tonne following the market trend, largely recovering the previous day’s decline; others, constrained by weak orders, kept quotations steady for the time being and adopted a wait-and-see approach.

As aluminium prices rebounded, market purchasing sentiment improved slightly compared with earlier, but downstream buyers continued to make just-in-time procurement as the main approach. Supply side, approaching the Chinese New Year holiday, some secondary aluminium alloy plants arranged early holiday closures due to reduced orders and environmental protection-related controls, with suspensions expected to begin on the 5th and continue successively; overall holiday duration was longer than the same period in previous years. Overall, downstream demand continued to shrink, and fundamental support for prices weakened marginally. In the short term, secondary aluminium alloy prices are expected to hover at highs. On the import front, overseas ADC12 quotations held steady on Wednesday at USD 2,840–2,900 per tonne, while domestic spot prices were raised by RMB 200 per tonne to RMB 22,900 per tonne, resulting in an immediate import profit of around RMB 300 per tonne.

Aluminium market summary: Macro front, domestic macro conditions were generally positive; U.S.-Iran negotiations were scheduled to take place in Oman, easing Middle East geopolitical risks. Demand side, affected by falling aluminium prices, purchasing sentiment edged up slightly, but constrained by the approaching Chinese New Year holiday, overall downstream purchasing sentiment remained at a relatively low level. Coupled with continued inventory buildup across the industry and a declining proportion of liquid aluminium conversion, the structural supply-demand imbalance in the industry had not been effectively alleviated. Overall, short-term volatility risks in SHFE aluminium and nonferrous metals markets increased significantly. 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.

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.