Expectations for US Fed interest rate cuts heat up, SHFE aluminium holds up well

Futures: On the night session of January 13, the SHFE aluminium 2603 contract opened at RMB 24,500 yuan per tonne, closed at RMB 24,780 yuan per tonne, up 1.66 per cent. After opening, it fluctuated upward, hitting a high of RMB 25,005 yuan per tonne, then pulled back and entered consolidation, touching a low of RMB 24,500 yuan per tonne. Trading volume was 380,000 lots, and open interest was 380,000 lots. From a technical perspective, the MA system showed a bullish alignment (MA5: 24,580 > MA10: 24,340 > MA20: 23,814.25 > MA60: 22,677.75), with the medium and long-term upward trend unbroken. LME aluminium opened at  USD3,185.5 per tonne, hit a high of  USD3,215.5 per tonne, a low of  USD3,157.5 per tonne, and finally closed at  USD3,196 per tonne, up 0.16 per cent. Trading volume was 30,700 lots, down 5,453 lots; open interest was 693,000 lots, up 4,800 lots.

Macro front: US core CPI rose 0.2 per cent m-o-m and 2.6 per cent YoY in December, matching the lowest level in four years and below market expectations of 0.3 per cent and 2.7 per cent. As US inflation data weakened, traders strengthened expectations that the US Fed would cut interest rates by mid-year. (Bullish ★) Foreign Ministry Spokesperson Mao Ning presided over a regular press conference yesterday. A reporter asked that the US impose a 25 per cent tariff on countries conducting business with Iran. In response, Mao Ning stated that China's stance on tariff issues is very clear, there are no winners in a tariff war, and China will firmly safeguard its legitimate rights and interests. (Neutral)

Fundamentals: Inventory side, according to SMM statistics, on January 13, domestic aluminium ingot inventory across three locations saw an inventory buildup of 7,000 tonnes compared to the previous trading day. Among them, the Wuxi area inventory increased by 10,500 tonnes, while Gongyi and Guangdong areas saw slight destocking.

Primary aluminium Market: In the morning session, the SHFE aluminium 2602 contract fluctuated downward, with the price centre lower than the previous trading day. High aluminium prices suppressed downstream procurement demand, and overall buyer trading sentiment declined week-over-week compared to the previous trading day. Mainstream transaction prices were mainly concentrated in the range of a discount of RMB 150 yuan per tonne to RMB 130 yuan per tonne against the 02 contract. This Tuesday, the East China market selling sentiment index was 2.59, down 0.05 w-o-w; the purchasing sentiment index was 2.49, down 0.25 w-o-w. SMM A00 aluminium was quoted at RMB 24,300 yuan per tonne, down RMB 40 yuan per tonne from the previous trading day, at a discount of RMB 60 yuan per tonne against the 2601 contract, up RMB 40 yuan per tonne from the previous trading day; at a discount of RMB 150 yuan per tonne against the 2602 contract. This Tuesday, the central China market sentiment recovered slightly, the premium/discount range narrowed, trading firms engaging in both spot and futures markets showed increased willingness to sell, market supply circulation was relatively loose, and holders had a stronger willingness to hold prices firm, with market prices relatively stable. The actual transaction prices in the central China market ultimately ranged from a discount of RMB 10 yuan to a premium of RMB 10 yuan against the central China price.

On Tuesday, the selling sentiment index in the central China market was 2.59, up 0.01 w-o-w; the purchasing sentiment index was 1.50, up 0.10 w-o-w. SMM's central China price closed at RMB 24,140 yuan per tonne, down RMB 40 yuan per tonne from the previous trading day, at a discount of RMB 220 yuan per tonne against the 2601 contract, up RMB 40 yuan per tonne from the previous trading day; at a discount of RMB 310 yuan per tonne against the 2602 contract; the Henan-Shanghai price spread was -RMB 160 yuan per tonne, flat from the previous trading day.

Aluminium scrap: On Tuesday, spot primary aluminium prices edged down slightly compared to the previous trading day, with SMM A00 spot closing at RMB 24,300 yuan per tonne, while aluminium scrap market prices held steady overall. Supply side, environmental protection-driven production restrictions in central China were lifted, but inventory levels for wrought aluminium alloy scrap remained saturated. Demand side, the "price without market" characteristic became prominent, downstream resistance to high prices was strong, with most purchasing as needed or digesting inventories, some enterprises planned early production halts, and Chinese New Year stocking expectations weakened. On Tuesday, baled UBC was mainly offered at RMB 17,700-18,100 yuan per tonne (ex-tax), and shredded aluminium tensile scrap (priced based on aluminium content) was mainly offered at RMB 19,450-19,950 yuan per tonne (ex-tax).

Regarding the price difference between A00 aluminium and aluminium scrap, on January 13, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 4,046 yuan per tonne, and the price difference between A00 aluminium and shredded aluminium tensile scrap was RMB 2,864 yuan per tonne. The aluminium scrap market is expected to hover at highs this week, with shredded aluminium tensile scrap (priced based on aluminium content) mainstream range at RMB 18,800-19,200 yuan per tonne (ex-tax). High primary aluminium prices will provide bottom support for aluminium scrap, but impeded cost transmission along the industry chain will limit upside room; inventory pressure on the supply side and the fragmented scrap sourcing landscape are difficult to change in the short term.

The suppressing effect on the demand side intensified as the Chinese New Year approaches, enterprises successively enter holiday schedules, the operating rate of secondary aluminium producers will further decline, downstream production cuts and halts will expand in scope, and stocking demand is unlikely to provide effective support. Overall, the tug-of-war between sellers and buyers continues, requiring close tracking of primary aluminium price trends, downstream shutdown progress, and pre-holiday transaction activity, while remaining vigilant against high price pullback risks.

Secondary aluminium alloy: On Tuesday, the aluminium price centre pulled back slightly, with the A00 price down RMB 40 yuan per tonne to RMB 24,300 yuan per tonne, while SMM ADC12 held steady at RMB 23,950 yuan per tonne. On Tuesday, the secondary aluminium market showed weak price adjustment willingness, with most enterprises maintaining stable prices and adopting a wait-and-see approach. As aluminium prices remained above RMB 24,000 yuan per tonne, the market's "price without market" characteristic remained prominent; actual transactions were mainly driven by rigid demand, downstream acceptance of high prices was limited, and wait-and-see sentiment was strong. From a market driver perspective, cost support and tight supply conditions provided bottom support for aluminium prices, but weak demand constrained price rises. Overall, buoyed by short-term macro tailwinds, ADC12 prices are expected to fluctuate at highs. Currently, the market is influenced by a mix of bullish and bearish factors, requiring close attention to changes in the supply-demand pattern and macro policy direction.

Aluminium market summary: Overall, the macro front has remained strong recently. Expectations for US Fed interest rate cuts continue to drive the logic of a monetary easing cycle, supporting nonferrous metal prices and creating a catch-up rally. The dual catalysts of monetary easing and new consumption policies have not only boosted risk appetite in the commodity market but also solidified demand expectations, resonating with overseas factors to further consolidate the foundation for aluminium price increases. Currently, the reality of pressured fundamental consumption and continuously accumulating social inventory imposes some restraint on sustained aluminium price rises. However, strong macro policy expectations and geopolitical risk disturbances, dominated by sentiment and capital flows, still provide support for aluminium prices. Aluminium prices are expected to mainly hover at highs.

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.