Greenland crisis takes a turn for the better, aluminium prices gain support at a phased bottom

Futures: Last night's session, SHFE aluminium closed at RMB 24,100  per tonne, up 0.77 per cent. The price stood above all key moving averages (MA5: 24,086; MA60: 24,083.08), with short-term MAs forming a bullish alignment, indicating a strong structure. In the MACD indicator, the DIF (0.9315) crossed above the DEA (-0.8008), and the histogram turned positive (0.2614), suggesting strengthening bullish momentum. The core trading range for SHFE aluminium is suggested at RMB 23,900-24,400  per tonne. LME aluminium closed at USD3,117.5 per tonne in the night session, edging down 0.03 per cent. The price fluctuated around the moving averages, slightly below the MA30 (USD3,119.52) and MA60 (USD3,120.52), facing short-term pressure. Both MACD lines remained below the zero axis (DIF: -0.7246; DEA: -0.6110), with a negative histogram (-0.2272), indicating the bearish pattern persisted. Market wait-and-see sentiment was thick. The core trading range for LME aluminium is suggested at USD3,090-3,150 per tonne.

Macro front:The Greenland crisis took a turn for the better. US President Trump announced that a framework agreement on the Greenland issue had been reached with NATO Secretary General Rutte. If this plan is ultimately implemented, it will greatly benefit the US and all NATO member states. Trump stated that the tariff measures originally scheduled to take effect on February 1 would not be implemented. (Bullish ★) The latest survey showed that most economists expected the US Fed to keep the benchmark rate unchanged this quarter and likely remain on hold until the term of Fed Chairman Powell ends in May. This view marked a significant shift from the previous month, when most respondents still expected at least one interest rate cut before March. However, most economists still projected at least two rate cuts later this year. (Neutral ★)

Fundamentals: Supply side, newly commissioned aluminium projects in China and Indonesia continued ramping up production, increasing the daily average production. Demand side, last week's downstream weekly operating rates overall remained relatively weak, but the operating rates for primary alloy and aluminium plate per sheet, strip and foil saw a slight rebound. Some primary alloy enterprises began year-end stockpiling, providing rigid demand support. For plate per sheet, strip and foil, downstream can stock and food packaging were in their peak consumption season, initiating pre-holiday stockpiling. However, pressured by high prices and the traditional off-season, the proportion of liquid aluminium in aluminium production continued its downward trend this week, down 0.21 percentage points M-o-M, with no significant improvement in fundamental performance.

Primary aluminium market: In the morning session, SHFE aluminium 2602 fluctuated upward, with the price center slightly higher than the previous trading day. This Wednesday, overall market trading sentiment improved slightly but remained at a low level. Mainstream transaction prices were mainly concentrated between a discount of RMB 10  per tonne and a premium of RMB 10  per tonne. On Wednesday, the sales sentiment index in the east China market was 2.89, up 0.04 w-o-w, while the purchase sentiment index was 2.46, up 0.03 w-o-w. SMM A00 aluminium was quoted at RMB 23,710  per tonne, up RMB 30  per tonne from the previous trading day, at a discount of RMB 150  per tonne against the 2602 contract, up RMB 10  per tonne from the previous trading day. On Wednesday, the buying sentiment in the central China market slightly increased compared to the previous day.

Although downstream processing enterprises reduced production by about 20 per cent due to environmental protection-related controls, the blizzard in Henan province ended and road transport gradually resumed, leading to a slight improvement in overall buying sentiment. Due to the incomplete recovery of aluminium plant shipments, suppliers raised prices to sell. On Wednesday, the actual transaction price in the central China market hovered around a premium of RMB 10  per tonne to RMB 40  per tonne over the central China price. On Wednesday, the sales sentiment index in the central China market was 2.68, unchanged w-o-w; the purchase sentiment index was 2.21, up 0.02 w-o-w. SMM central China closed at RMB 23,610  per tonne, up RMB 50  per tonne from the previous trading day, at a discount of RMB 250  per tonne against the 2602 contract, up RMB 30  per tonne from the previous trading day. The Henan-Shanghai price difference was -RMB 100  per tonne, narrowing RMB 20  per tonne from the previous trading day.

Secondary aluminium raw materials: On Wednesday, spot primary aluminium prices fluctuated rangebound compared to the previous trading day, with SMM A00 spot closing at RMB 23,710  per tonne, and the aluminium scrap market followed the decline in primary aluminium prices. On Wednesday, baled UBC aluminium scrap was centrally quoted at RMB 17,150-17,650  per tonne (excluding tax), and shredded aluminium tensile scrap (priced based on aluminium content) was centrally quoted at RMB 19,200-19,700  per tonne (excluding tax). In terms of the price difference between A00 aluminium and aluminium scrap, on January 21, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 3,530  per tonne, and the price difference between A00 aluminium and shredded aluminium tensile scrap in Foshan was RMB 2,509  per tonne. Against the backdrop of high aluminium prices forcing aluminium scrap to follow the rise, a situation of "nominal prices without actual transactions" has emerged, dampening downstream buying sentiment and leading to purchasing as needed. On the other hand, the National Commission for Disaster Prevention and Mitigation decided to initiate a Level IV emergency response for low-temperature, rain, snow, and freezing disasters in four provinces—Anhui, Henan, Hunan, and Guizhou—at 18:00 on January 18.

Due to rain and snow, scrap utilisation enterprises in related provinces and cities were somewhat affected in terms of aluminium scrap collection and delivery efficiency. It is expected that the aluminium scrap market will hover at highs this week, with shredded aluminium tensile scrap (priced based on aluminium content) projected to trade in the main range of RMB 19,600-20,100  per tonne (excluding tax) next week. High primary aluminium prices will provide bottom support for aluminium scrap, but the persistent and intensifying losses continue to force downstream enterprises to further expand production cuts and shutdowns, while weak stocking demand limits the upside. The overall tug-of-war between sellers and buyers continues, and it is necessary to closely track the trend of primary aluminium, the progress of downstream shutdowns, and pre-holiday transaction conditions, while remaining vigilant against the risk of a high-price correction.

Secondary aluminium alloy: In the futures market, the aluminium alloy 2603 contract opened at RMB 22,675  per tonne on Wednesday, maintaining a weak and rangebound pattern in the morning session, with the price dipping to a low of RMB 22,600  per tonne during the session. In the afternoon, market sentiment recovered, and prices rose rapidly, hitting a high of RMB 22,965  per tonne, finally closing at RMB 22,895  per tonne, up RMB 130  per tonne or 0.57 per cent from the previous trading day. Bears mainly reduced their positions. Spot market, A00 aluminium price rebounded by RMB 30  per tonne to RMB 23,710  per tonne on Wednesday, while SMM ADC12 price held steady at RMB 23,850  per tonne. Aluminium price rebounded slightly on Wednesday, but the secondary aluminium market showed weak willingness to adjust prices, maintaining an overall wait-and-see stance.

In the afternoon, futures rose significantly, with some enterprises actively raising prices by RMB 100  per tonne. Demand side, affected by fear of high prices and weak pre-holiday stockpiling momentum, procurement maintained a rigid pace, resulting in mediocre performance in transactions. Overall, short-term secondary aluminium alloy prices are expected to continue fluctuating at highs. Although the off-season and high aluminium prices have suppressed market activity, adverse weather conditions have hindered the flow of raw materials, coupled with uncertainty in regional tax policies and supply tightness caused by environmental protection-driven production restrictions, collectively providing bottom support for prices. Import market, overseas ADC12 offers remained stable at USD2,860–2,890 per tonne, with import arbitrage profits hovering around RMB 200  per tonne.

Aluminium market summary: Macro front, US President Trump announced a suspension of plans to impose additional tariffs on Europe, cooling trade friction risks between the US and Europe previously triggered by Greenland issues and easing market risk aversion sentiment. Expectations for US Fed interest rate cuts were delayed, and the pace of monetary policy easing was slower than previously anticipated, marginally weakening the boost from macro liquidity expectations on metal prices. Supply side, new aluminium capacity domestically and overseas continued to ramp up, with daily average production steadily increasing.

Demand side showed structural divergence: primary alloy and aluminium plate per sheet, strip and foil industries saw a slight rebound in operating rates supported by year-end stockpiling and peak consumption season, providing some rigid demand. However, high-price suppression and off-season effects persisted, with the proportion of liquid aluminium in aluminium production continuing to decline M-o-M, indicating insufficient momentum for an overall recovery in end-use consumption. Inventory pressure further intensified, showing no significant improvement overall. In summary, the easing of macro risk sentiment provided phased bottom support for aluminium prices, but the combination of loose supply, weak demand, and inventory accumulation on the fundamental side limited upside room for aluminium prices.

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.