Macro tug-of-war between longs and shorts, aluminium prices fluctuate considerably at high levels

Futures: During the night session on January 30, the most-traded SHFE aluminium 2603 contract opened at RMB 24,365 per tonne, reached a high of RMB 24,720 per tonne, touched a low of RMB 24,240 per tonne, and finally closed at RMB 24,600 per tonne, up RMB 40 per tonne or 0.16 per cent from the previous close. From a technical perspective, the MA moving averages showed a bullish alignment (MA5: 24,939 > MA10: 24,536 > MA20: 24,416.25 > MA30: 23,805.17), and the MACD 4-hour candlestick level continued to show red bars (DIFF: 266.41, DEA: 263.64). In terms of open interest, the night session open interest was approximately 275,000 lots, down 9,950 lots from the daytime session. LME aluminium opened at USD3,240 per tonne, reached a high of USD3,241 per tonne, touched a low of USD3,057 per tonne, and finally closed at USD3,135.5 per tonne, down 3.03 per cent from the previous day. Trading volume was 58,000 lots, down 31.3 million lots, while open interest was 701,000 lots, up 693 lots.

Macro front: On January 30, US President Donald Trump nominated former Fed Governor Kevin Warsh to serve as the next Fed Chairman. That same day, international precious metals markets experienced a crash-like plunge. (Bearish ★) On January 30, US President Donald Trump warned that the fleet size heading towards Iran was "even larger than the fleet deployed in Venezuela," but he left the door open for a deal with Tehran. (Bullish ★) On January 30, the National Development and Reform Commission (NDRC) and the National Energy Administration issued the "Notice on Improving the Capacity Price Mechanism on the Generation Side." It proposed that regions with a high proportion of new energy installations and large reliable capacity requirements should accelerate the establishment of a reliable capacity compensation mechanism; the proportion of fixed costs recovered for coal power units through the capacity price mechanism should be increased to no less than 50per cent; and a capacity price mechanism for grid-side independent new-type energy storage should be established. (Neutral)

Fundamentals: According to SMM statistics, domestic aluminium production in January 2026 (31 days) increased by 2.7 per cent YoY and 0.5 per cent m-o-m. The overall operating rate of downstream sectors showed a downward trend during the month, and the proportion of liquid aluminium declined in sync, dropping 4.4 percentage points m-o-m to 72.1 per cent, a decrease larger than expected at the beginning of the month. The main reasons include: 1) Under the influence of the off-season, demand had not yet recovered, coupled with some downstream plants taking an early Chinese New Year break; 2) aluminium prices generally fluctuated at highs in January, putting pressure on downstream profit margins, leading to an overall decline in the operating rate; 3) Repeated environmental protection-driven production restrictions in some regions constrained raw material demand. Based on SMM's proportion of liquid aluminium data, domestic aluminium casting ingot volume in January decreased by 5.9 per cent YoY but increased by 19.4 per cent m-o-m.

Primary aluminium market: In the early session, the SHFE aluminium 2602 contract fluctuated downward, with its price centre lower than the previous trading day. Affected by high aluminium prices and the Chinese New Year break at downstream enterprises, overall market buying sentiment remained weak. The mainstream market transactions were concentrated at a discount of RMB 10-30 per tonne against the A00 aluminium price. Last Friday, the selling sentiment index in east China was 2.53, down 0.22 w-o-w; the buying sentiment index was 2.13, down 0.1 w-o-w. SMM A00 aluminium was quoted at RMB 24,660 per tonne, down RMB 200 per tonne from the previous trading day, at a discount of RMB 210 per tonne against the Feb 2026 contract, down RMB 10 per tonne from the previous trading day.

Aluminium prices pulled back after a rapid rise, and the latest round of environmental protection-related controls in Henan province was nearing its end. Downstream processing enterprises took the opportunity to restock slightly, and traders continued to purchase actively for hedging purposes, leading to a slight improvement in market buying sentiment. The actual transaction prices in central China eventually stabilised at a discount of RMB 20-40 per tonne against the central China price. Last Friday, the selling sentiment index in central China was 2.91, up 0.02 w-o-w; the buying sentiment index was 2.46, up 0.01 w-o-w. SMM central China price closed at RMB 24,480 per tonne, down RMB 210 per tonne from the previous trading day, at a discount of RMB 390 per tonne against the Feb 2026 contract, down RMB 20 per tonne from the previous trading day. The price spread between central China and Shanghai was -RMB 180 per tonne, widening by RMB 10 per tonne from the previous trading day.

Secondary aluminium raw materials: Spot primary aluminium prices fell last Friday compared to the previous trading day, with the SMM A00 spot price closing at RMB 24,660 per tonne. Aluminium scrap prices generally pulled back last Friday. Last Friday, baled UBC was mainly quoted at RMB 17,650-18,150 per tonne (ex-tax), and shredded aluminium tensile scrap (priced based on aluminium content) was mainly quoted at RMB 19,800-20,500 per tonne (ex-tax). In terms of the price difference between primary aluminium and scrap, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 4,088 per tonne on Jan 30, and the price difference between A00 aluminium and shredded aluminium tensile scrap was RMB 3,174 per tonne. Following the sharp overnight drop in SHFE aluminium yesterday and the downward fluctuation and pullback during the day last Friday, the closing decline reached 3.45 per cent. Regions including Shanghai, Jiangsu, Shandong, and Jiangxi adjusted following the aluminium price, with pullback ranges varying from RMB 300-600 per tonne. Recently, directly impacted by recycling policies and forced to follow the rise in aluminium prices, the market has shown a situation of "nominal prices without actual transactions." Scrap utilisation enterprises in related provinces were forced to reduce or halt production, downstream buying sentiment was dampened, and purchasing was conducted as needed.

Aluminium scrap prices are expected to hover at highs this week, with shredded aluminium tensile scrap (priced based on aluminium content) mainly ranging between RMB 19,700-20,600 per tonne (ex-tax). Against the backdrop of persistently high primary aluminium prices, coupled with recycling policies constraining the liquidity of the aluminium scrap market, more bottom support will be provided for aluminium scrap prices. However, with repeated production restrictions in central China and persistently low downstream operating rates, the "nominal prices without actual transactions" supply-demand pattern is difficult to change, stocking demand is hard to release, and the overall tug-of-war between sellers and buyers intensifies. Before the Chinese New Year, it is necessary to closely track the trend of primary aluminium, the progress of lifting environmental protection warnings in central China, and pre-holiday production halts and breaks. Be cautious of aluminium prices retreating after a rapid rise, which could lead to a pullback in aluminium scrap, and market trading activity will remain sluggish.

Secondary aluminium alloy: In the futures market, the 2603 aluminium alloy contract opened at RMB 23,270 per tonne last Friday. The overall trend continued to be in the doldrums from the night session, closing at RMB 22,820 per tonne, a decrease of RMB 1,030 per tonne or 4.32per cent compared to the previous trading day, with the main activity being bulls reducing their positions. In the spot market, aluminium prices saw a significant correction on Friday, with A00 aluminium prices falling by RMB 200 per tonne to RMB 24,660 per tonne, and SMM ADC12 prices also dropping by RMB 200 per tonne to RMB 24,350 per tonne. Some manufacturers attempted to hold prices firm before noon, limiting the decline in quotes; however, as the futures market continued to fall, the sentiment to hold prices firm dissipated, leading to a widespread price drop.

In terms of transactions, downstream restocking willingness was low, maintaining only just-in-time procurement. The widening spot-futures price spread led to improved trader activity. As the Chinese New Year approaches, downstream demand is expected to contract, providing limited fundamental support. However, with high aluminium scrap costs and a temporary tightening of supply, the downside room for prices is constrained. It is expected that secondary aluminium alloy prices will fluctuate at highs in the short term. On the import front, overseas ADC12 quotes remain at USD2,900–USD 2,950 per tonne, relatively firm compared to domestic prices, narrowing the immediate profit margin for imports to around RMB 300 per tonne.

Summary of aluminium market trends: Overall, recent SHFE aluminium prices have strengthened abnormally, driven by three key factors: first, the escalation of US-Iran geopolitical tensions has significantly disrupted aluminium product trade; second, under the backdrop of position limits in the precious metals market, there is a trend of capital flowing into the base metal sector; third, expectations for production cuts at domestic alumina refineries have increased, further boosting the overall bullish sentiment.

The macro front remains strong, with the logic of a monetary easing cycle driven by expectations for US Fed interest rate cuts unchanged. The US dollar index has fallen consecutively in the short term, continuously supporting non-ferrous metal prices. From the supply side, domestic and Indonesian aluminium projects continue to ramp up smoothly, with daily average production steadily increasing, and the trend of supply growth continues. Demand performance is weak, with high aluminium prices suppressing purchase willingness among downstream enterprises, leading to an expected decline in operating rates. Overall, the spot market is in a cold and watchful state, coupled with ongoing inventory buildup and a continuous decline in the proportion of liquid aluminium conversion, the industry's supply-demand imbalance has not been effectively alleviated. In summary, the current SHFE aluminium price surge is driven by event-driven and capital-driven factors, with market sentiment in a temporarily euphoric state. Caution is advised against potential cooling of sentiment and market correction risks due to multiple factors.

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.