National subsidy policy funds disbursed, inventory buildup reality limits upside potential for aluminium prices

Futures: The night session closed at RMB 22,615 per tonne, up 0.87 per cent. The price was slightly below the MA5 (22,629) but remained above all key moving averages. The MA5 to MA60 (22,622.25) were highly convergent, indicating a strong consolidation pattern. The MACD lines were above the zero axis (DIF 0.9883, DEA 0.8756), with the histogram positive (0.2454), maintaining a bullish stance. The core trading range for SHFE aluminium is suggested at 22,400-22,800. LME aluminium's night session closed at USD 2,986.5 per tonne, up 1.22 per cent. The price held above all short-term moving averages (MA5 2,985.50, MA60 2,985.35), with the moving average system providing support. The MACD lines turned positive near the zero axis (DIF 0.1560, DEA 0.1219), and the histogram was slightly positive (0.0681), showing a slight strengthening in short-term momentum. The core trading range for LME aluminium is suggested at 2,950-3,000.

Macro front: The 2026 national subsidy plan was officially released. The National Development and Reform Commission (NDRC) and the Ministry of Finance issued the "Notice on Implementing the Large-Scale Equipment Renewal and Consumer Goods Trade-in Policy in 2026," along with the first batch of RMB 62.5 billion in funds to support consumer goods trade-ins. (Bullish ★) The minutes from the US Fed's December meeting showed that the FOMC agreed to cut interest rates at the December meeting, but officials were deeply divided. Some participants indicated that, based on their economic outlook, after lowering the target range at this meeting, it might be necessary to maintain the target range unchanged for some time. The minutes also showed that if inflation declines gradually as expected, most officials viewed further rate cuts as appropriate. (Neutral ★)

Fundamentals: Supply side, new aluminium projects in China and Indonesia continued to ramp up, with daily average production increasing further. Additionally, a new aluminium project in Inner Mongolia announced a successful power-on on December 20. In the near term, daily average aluminium production is expected to continue growing. Demand side, high prices suppressed downstream cargo pick-up demand, and environmental protection-related controls in central China intensified further, leading to full production halts at some local aluminium processing enterprises. Spot demand continued to shrink accordingly, with production expected to gradually resume after the New Year's Day holiday. The operating rate declined. On the inventory side, according to SMM statistics, domestic aluminium ingot inventory in mainstream consumption areas recorded 660,000 tonnes this Wednesday, with an inventory buildup of 15,000 tonnes compared to this Monday.

Primary aluminium market: In the early session, the SHFE aluminium 2601 contract fell, with the price centre significantly lower than the previous trading day. On Tuesday, aluminium prices declined, and buying sentiment in the eastern China market slightly increased, with some downstream users restocking. However, affected by year-end settlement and account closing, overall trading sentiment remained low. On Tuesday, mainstream transaction prices mainly ranged from a discount of RMB 10 per tonne to parity against the SMM average price. The selling sentiment index in the East China market was 2.03, down 0.1 w-o-w, while the buying sentiment index was 2.24, up 0.04 w-o-w.

The SMM A00 aluminium price was quoted at RMB 22,180 per tonne, down RMB 310 per tonne from the previous trading day, at a discount of RMB 200 per tonne against the Jan '26 contract, unchanged from the previous day. Aluminium prices corrected, but downstream demand remained weak. Environmental protection-driven production restrictions intensified, leading downstream processing enterprises in central China to suspend raw material procurement, which dampened traders' buying sentiment. Overall market transactions were weak, but are expected to improve after processing enterprises gradually resume operations following the New Year holiday. On Tuesday, actual transaction prices in the central China market hovered between a discount of RMB 30 per tonne and parity against the central China price. The selling sentiment index in the central China market was 2.72, down 0.01 w-o-w, while the buying sentiment index was 1.53, up 0.16 w-o-w. The SMM central China aluminium price closed at RMB 21,970 per tonne, down RMB 330 per tonne from the previous trading day, at a discount of RMB 410 per tonne against the Jan '26 contract, down RMB 20 per tonne from the previous day. The price spread between Henan and Shanghai was -RMB 210 per tonne, down RMB 20 per tonne from the previous day.

Recycled aluminium raw materials: On Tuesday, spot primary aluminium prices corrected from the previous trading day, with the SMM A00 spot price closing at RMB 22,180 per tonne. The aluminium scrap market followed the downward trend of primary aluminium prices. Some scrap utilisation enterprises reported high inventories of wrought aluminium alloy scrap accumulated during the peak season, and, lacking sufficient orders on hand to hedge against raw material inventories, they temporarily slowed their procurement pace for related scrap materials.

As 2026 approaches, the implementation of resource recycling policies still faces significant obstacles, with issues such as natural persons and invoice upper limits remaining difficult to resolve. Some recycling enterprises have already chosen to pass on additional tax burdens to the aluminium scrap supply side, increasing the risk of downward pressure on aluminium scrap price floors. On Tuesday, baled UBC was mainly quoted at RMB 16,700-17,100 per tonne (ex-tax), while shredded aluminium tensile scrap (priced based on aluminium content) was mainly quoted at RMB 18,300-18,800 per tonne (ex-tax). Prices in Shanghai, Zhejiang, Jiangsu, Tianjin, and Shandong fell by RMB 100-300 per tonne on Tuesday, while prices in Guizhou, Henan, Jiangxi, and Hubei fell by RMB 100 per tonne or remained largely stable. Domestic aluminium scrap prices are expected to hover at highs around the New Year holiday, but caution is warranted against the risk of a correction from elevated levels. Supply side, the issue of tax burden transfer further affects the market supply structure.

Demand side, stocking demand from secondary aluminium alloy enterprises for the Chinese New Year will continue to support procurement of aluminium tensile scrap, but signs of slowing demand from downstream die-casting enterprises, combined with wait-and-see sentiment driven by aluminium price fluctuations, have weakened overall demand support for prices. At the policy level, the uncertainty of recurring environmental protection-driven production restrictions in central China and Chongqing continued to suppress local demand in the short term. Price-wise, the centre for shredded aluminium tensile scrap (priced based on aluminium content) hovered at RMB 18,200-18,700 per tonne (tax excluded). Short-term focus should be on signals of easing environmental protection-driven production restriction policies, changes in downstream enterprises' procurement pace, and the impact of tax burden shifting on price floors.

Secondary aluminium alloy: Futures side, on Tuesday, the most-traded cast aluminium alloy futures contract 2602 opened at RMB 21,330 per tonne, quickly hit the day's low of RMB 21,320 per tonne, then rebounded rapidly to touch the day's high of RMB 21,670 per tonne, before pulling back under pressure and finally closing at RMB 21,475 per tonne, down RMB 170 per tonne or 0.79 per cent from the previous close. The intraday trend showed a pattern of bottoming out and rebounding, then retreating after hitting highs, with bears mainly increasing positions. In the spot market on Tuesday, SMM A00 aluminium price fell sharply by RMB 310 per tonne to RMB 22,180 per tonne; SMM ADC12 price pulled back by RMB 100 per tonne to RMB 22,300 per tonne. After hitting near three-year highs, aluminium prices saw a significant pullback, and copper prices also fell by over RMB 3,000 per tonne in a single day, dragging down aluminium scrap prices by RMB 100-300 per tonne across the board. Secondary aluminium plants' offers were divergent: some lowered quotes by RMB 100 per tonne following the market, while others held steady and adopted a wait-and-see approach, keeping prices firm.

Demand side, affected by high aluminium prices and year-end account closures, overall performance was weak, with insufficient downstream purchase willingness, and the market showed a state of "price without market." Overall, high costs and tightening supply supported prices, but declining demand and aluminium prices fluctuating at highs suppressed downstream procurement enthusiasm, leaving limited upside room for prices. ADC12 prices were expected to hover at highs in the short term. Import side, current overseas ADC12 offers rose slightly to the range of USD 2,660-2,690 per tonne, with real-time import profit margins around RMB 300 per tonne.

Aluminium market summary:Macro perspective, the implementation of the 2026 national subsidy plan and fund disbursement, focusing on stimulating consumer goods trade-ins, is expected to boost downstream aluminium demand in the medium to long term, forming a policy floor expectation. The demand side was constrained by high prices and environmental protection-driven production restrictions, with the proportion of liquid aluminium declining significantly, and operating rates in downstream extrusion and other sectors remaining weak, indicating sluggish spot consumption. Overall, suppressed fundamental consumption and continuously increasing inventory significantly capped the upward momentum for prices. Aluminium prices were expected to mainly fluctuate in the short term, with obvious resistance above.

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.