Rising risks of EU-US trade frictions, significant resistance to short-term aluminium price rise

Futures: SHFE aluminium closed at RMB 23,945 per tonne in the night session last Friday, down 0.99 per cent. Prices traded above all key moving averages (MA5 23,939, MA60 23,924.17), but pulled back near the short-term averages, indicating high-level fluctuations in the near term. The MACD lines were above the zero axis (DIF 3.6179, DEA 3.3802), with the histogram shrinking to 0.4753, suggesting weakening upward momentum. The core trading range for SHFE aluminium is suggested at 23,700-24,100. LME aluminium closed at USD 3,132 per tonne in the night session, with minimal volatility. Prices traded near the MA5 (3,132.4) but fell below the MA10 (3,133.5) and MA60 (3,137.57), showing signs of weakness in the short-term moving average system. The MACD lines were below the zero axis (DIF -1.4856, DEA -1.2182), with a negative histogram of -0.5346, indicating strengthening bearish sentiment. The core trading range for LME aluminium is suggested at 3,100-3,160.

Macro front: Multiple EU countries are considering imposing additional tariffs on US goods worth 93 billion euros exported to Europe, or restricting US enterprises' access to the EU market, in retaliation for US President Trump's tariff hikes on eight European countries to acquire Greenland. Previously, Trump announced on social media that, starting February 1, a 10 per cent additional tariff would be imposed on goods from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland exported to the US, with the tariff rate increasing to 25 per cent from June 1 until an agreement is reached on the US "comprehensive and thorough purchase of Greenland." (Bearish ★)

Fundamentals: Supply side, new aluminium projects in China and Indonesia continued to ramp up, with daily average production further increasing. Demand side, the overall weekly operating rate of downstream sectors remained relatively weak this week, but operating rates for primary alloy and aluminium plate/sheet, strip and foil saw a slight rebound. Some primary alloy enterprises began year-end stockpiling, providing rigid support for demand. For plate/sheet, strip and foil, downstream can stock and food packaging are in the peak consumption season, initiating pre-holiday stockpiling. However, high prices continued to suppress demand, and amid 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 fundamentals. Inventory side, according to SMM statistics, aluminium ingot inventory in mainstream consumption areas recorded 749,000 tonnes this Monday, an increase of 13,000 tonnes compared to last Thursday.

Primary aluminium market: The SHFE aluminium 2602 contract fluctuated during the morning session last Friday, with the price centre lower than the previous trading day. Influenced by the decline in aluminium prices, overall downstream procurement sentiment recovered somewhat, with mainstream transaction prices mainly ranging from parity to a premium of RMB 20 per tonne. Last Friday, the sales sentiment index in the east China market was 2.61, up 0.04 W-o-W; the purchasing sentiment index was 2.55, up 0.11 W-o-W. SMM A00 aluminium closed at RMB 24,030 per tonne, down RMB 160 per tonne from the previous trading day, at a discount of RMB 180 per tonne against the 2602 contract, down RMB 10 per tonne from the previous trading day. Last Friday, trading activity in the central China market continued to recover. Although downstream plants mainly purchased based on rigid demand with slight restocking, large traders actively purchased, accelerating the circulation of spot cargo. Holders held prices firm and were reluctant to sell, driving market prices higher. Eventually, actual transaction prices in the central China market rose steadily, ranging from a discount of RMB 10 to a premium of RMB 20 against the central China price. Last Friday, the sales sentiment index in the central China market was 2.67, up 0.07 W-o-W; the purchasing sentiment index was 2.25, up 0.30 W-o-W. SMM central China closed at RMB 23,880 per tonne, down RMB 150 per tonne from the previous trading day, at a discount of RMB 330 per tonne against the 2602 contract, down RMB 20 per tonne from the previous trading day. The price spread between Henan and Shanghai was RMB -150 per tonne, narrowing by RMB 10 per tonne from the previous trading day.

Aluminium scrap: Last Friday, spot primary aluminium prices continued to experience a slight correction compared to the previous trading day, with SMM A00 spot aluminium closing at RMB 24,030 per tonne. Aluminium scrap prices overall held steady or followed with minor declines. Supply side, environmental protection-driven production restrictions in central China were lifted, but inventory levels of wrought aluminium alloy scrap remained saturated. Demand side, the characteristic of "nominal prices without actual transactions" became prominent, with downstream users showing strong resistance to high prices, mostly purchasing as needed or digesting inventories. Some enterprises planned to halt production early, and expectations for Chinese New Year stockpiling weakened. Last Friday, baled UBC was mainly offered at RMB 17,200-17,700 per tonne (tax excluded), while shredded aluminium tense scrap (priced based on aluminium content) was mainly offered at RMB 19,150-19,650 per tonne (tax excluded). Regarding the price difference between A00 aluminium and aluminium scrap: on January 16, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 3,743 per tonne, and the price difference between A00 aluminium and shredded aluminium tense scrap was RMB 2,614 per tonne. The aluminium scrap market is expected to hover at highs this week, with the mainstream range for shredded aluminium tense scrap (priced based on aluminium content) at RMB 19,600-20,100 per tonne (tax excluded). High primary aluminium prices will provide bottom support for aluminium scrap, but the situation of losses continues to intensify, forcing downstream enterprises to further expand production cuts and halts. Weak stocking demand limits the upside. Overall, the tug-of-war between sellers and buyers persists, requiring close monitoring of primary aluminium trends, the progress of downstream production halts, and pre-holiday transaction conditions, while remaining vigilant against the risk of a correction from highs.

Secondary aluminium alloy: Futures side, the aluminium alloy 2603 contract opened at RMB 23,070 per tonne last Friday. The futures fluctuated downward overall, hitting a bottom RMB of 22,605 per tonne, and finally closed at RMB 22,735 per tonne, down RMB 420 per tonne or 1.81 per cent from the previous close. Bulls mainly reduced their positions. In the spot market, aluminium prices saw another significant correction today, with A00 prices falling RMB 160 per tonne to RMB 24,030 per tonne, and SMM ADC12 prices dropping RMB 100 per tonne to RMB 23,900 per tonne. Although two consecutive declines during the week cooled market sentiment, absolute prices remained above RMB 24,000 per tonne, hovering at highs. Quotations in the secondary aluminium market diverged: some enterprises chose to hold steady and adopt a wait-and-see approach due to firm costs, low inventory, or bullish expectations, while others, affected by weak demand, lowered prices by RMB 100-300 per tonne in line with market conditions. On the demand side, the wait-and-see sentiment intensified due to falling prices. Although some die-casting companies, pressured by production needs, restocked, leading to a marginal improvement in inquiry activity and purchase willingness, actual transactions remained sluggish due to downstream losses, causing a noticeable decline in orders for some secondary aluminium plants. In the short term, secondary aluminium alloy prices are expected to hover at highs. On one hand, cost support weakened, and the market was suppressed by both the off-season and losses, resulting in sluggish trading activity. On the other hand, uncertainties in regional tax policies, supply constraints from environmental protection-driven production restrictions, and macro tailwinds continued to provide a floor for prices. In the import market, overseas ADC12 quotations held steady at USD 2,860–2,890 per tonne, while domestic spot prices fell to RMB 23,000-23,200 per tonne, with immediate import profits in the range of RMB 300-500 per tonne.

Aluminium market summary: On the macro front, the EU will impose additional tariffs on US imports in retaliation against US tariff measures on several European countries, increasing uncertainty in the global trade environment. If this trade conflict continues to escalate, it will negatively impact aluminium demand expectations from both risk sentiment and end-use product trade flow perspectives. On the supply side, new aluminium capacity domestically and overseas continued to ramp up, with daily average production steadily increasing. Demand side showed structural divergence: the primary alloy and aluminium plate/sheet, strip and foil industries saw a slight rebound in operating rates due to year-end stockpiling and peak consumption season support, providing some rigid demand. However, high-price suppression and off-season effects persisted, and the proportion of liquid aluminium in aluminium production continued to decline M-o-M, indicating insufficient momentum for an overall recovery in end-use consumption. Fundamentally, no significant improvement was observed. Overall, rising macro trade friction risks will suppress market sentiment, and fundamentals also appear bearish given clear supply increments, only partial demand recovery, and continued inventory accumulation trends. However, funds' bullish sentiment toward aluminium futures prices has not completely cooled, and aluminium prices are expected to fluctuate 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. 

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