SHFE and LME aluminium prices strengthen in sync, and insufficient fundamental support awaits observation

Futures: On the night of December 19, SHFE aluminium 2602 contract opened at RMB 22,295 per tonne and closed at RMB 22,245 per tonne, up 0.27 per cent, with a high ofRMB  22,365 per tonne and a low of RMB 22,200 per tonne. Trading volume was 111,000 lots, and open interest was 321,000 lots, showing a "bottom out + steady volume and open interest" pattern, holding up well. LME aluminium opened at USD 2,917.5 per tonne, reached a high of USD 2,960 per tonne, and a low of USD 2,909.5 per tonne, closing at USD 2,955.5 per tonne, up 1.32 per cent. Trading volume was 21,600 lots, an increase of 4,742 lots, and open interest was 683,000 lots, an increase of 8,942 lots.

Macro front: The expanded meeting of the Ministry of Commerce Party Leadership Group was held in Beijing on December 20. The meeting emphasised boosting consumption, expanding the supply of high-quality goods and services, and releasing the potential of service consumption (Bullish ★). According to CME's "FedWatch": the probability of the US Fed cutting interest rates by 25 basis points in January next year is 21 per cent, and the probability of maintaining the current rate is 79 per cent. By March next year, the probability of a cumulative 25-basis-point cut is 47.1 per cent, the probability of no change is 43.4 per cent, and the probability of a 50-basis-point cut is 9.5 per cent (Bullish ★).

Fundamentals: In terms of inventory, according to SMM statistics, as of last Friday, the inventory of aluminium ingot in major domestic consumption areas was 600,000 tonne, an increase of 22,000 tonne from Thursday, and an increase of 4,000 tonne w-o-w from Monday.

Primary aluminium market: In the morning session, SHFE aluminium 2601 contract fluctuated. The number of suppliers dumping inventory decreased, and downstream buying sentiment slightly recovered. Quotations were mainly at a discount of RMB 20 per tonne against the SMM average price, with a concentration at a discount of RMB 10 per tonne. Last Friday, the East China market's selling sentiment index was 2.43, down 0.04 w-o-w; the purchasing sentiment index was 2.48, up 0.07 w-o-w. SMM A00 aluminium was quoted at RMB 21,820 per tonne, up RMB 90 per tonne from the previous trading day, at a discount of RMB 150 per tonne against the 2601 contract, down RMB 10 per tonne from the previous trading day.

In the Central China market last Friday, transaction sentiment continued to weaken, with aluminium prices retreating from highs. Downstream enterprises showed tepid buying sentiment, but some traders actively purchased to complete long-term contract deliveries, resulting in some transactions. Market quotations first weakened then recovered, with final actual transaction prices ranging from a discount of RMB 10 per tonne to RMB 40 per tonne against the Central China price. Last Friday, the Central China market's selling sentiment index was 2.79, unchanged w-o-w; the purchasing sentiment index was 2.66, down 0.01 w-o-w. SMM Central China closed at RMB 21,690 per tonne, up RMB 70 per tonne from the previous trading day, at a discount of RMB 280 per tonne against the 2601 contract, down RMB 30 per tonne from the previous trading day. The price spread between Central China and Shanghai was -RMB 130 per tonne, down RMB 20 per tonne from the previous trading day.

Recycled aluminium raw materials: Spot primary aluminium prices fluctuated and rose last Friday compared to the previous trading day, with the SMM A00 spot price closing at RMB 21,820 per tonne. The aluminium scrap market followed the increase collectively. Some scrap utilisation enterprises reported high inventories of wrought aluminium alloy scrap collected during the peak season, lacking sufficient orders on hand to hedge against raw material inventories, thus temporarily slowing down the procurement pace for related scrap materials. Furthermore, repeated environmental protection-driven production restrictions in Chongqing have led to a slight weakening in downstream demand for aluminium scrap. Secondary aluminium alloy scrap utilisation enterprises indicated that they are about to begin stockpiling for the Chinese New Year and are currently conducting concentrated procurement of aluminium scrap raw materials, thereby accelerating the procurement pace for aluminium tense scrap-based materials. Last Friday, baled UBC was centrally quoted at RMB 16,300-16,800 per tonne (tax excluded), and shredded aluminium tensile scrap (priced based on aluminium content) was centrally quoted at RMB 18,100-18,650 per tonne (tax excluded).

Prices for baled UBC, clean tapping aluminium wire, mixed aluminium extrusion scrap free of paint, mechanical casting aluminium scrap, scrap motorcycle wheel, and mixed aluminium tense scrap remained stable or were slightly raised by RMB 25-50 per tonne m-o-m. Regarding the price difference between A00 aluminium and aluminium scrap, the price difference between A00 aluminium and shredded aluminium tense scrap closed at RMB 1,916 per tonne on December 19, and the price difference between A00 aluminium and bare bright aluminium wire in Jiangsu was RMB 884.4 per tonne. The aluminium scrap market is expected to hover at highs next week, with the mainstream range for shredded aluminium tense scrap (priced based on aluminium content) forecasted at RMB 18,000-18,500 per tonne (tax excluded).

The tight supply pattern for aluminium scrap is difficult to change in the short term, and shortages of imported raw materials are providing a floor for prices. As stockpiling ahead of the Chinese New Year is about to begin, concentrated raw material procurement by some scrap utilisation enterprises will provide some support for scrap demand. However, repeated environmental protection-driven production restrictions in central and south-west China are causing market participants to maintain a cautious sentiment. Overall, the tug-of-war between sellers and buyers in the aluminium scrap market is expected to continue next week. It is crucial to closely track fluctuations in primary aluminium prices, the implementation of environmental protection production restrictions, and changes in the procurement pace of downstream enterprises, while remaining vigilant against the risk of a pullback from highs.

Secondary aluminium alloy: In the futures market last Friday, the most-traded cast aluminium alloy contract 2602 opened at RMB 21,080 per tonne. The futures price fluctuated and rose during the day, touching a high of RMB 21,285 per tonne in the afternoon, and finally closed at RMB 21,235 per tonne, up RMB 125 per tonne or 0.59 per cent from the previous trading day. The increase was primarily driven by bulls adding positions. In the spot market last Friday, the SMM A00 aluminium price rose slightly by RMB 90 per tonne to RMB 21,820 per tonne, while the ADC12 price was raised by RMB 50 per tonne to RMB 21,700 per tonne.

Following the rise in aluminium prices, the secondary aluminium market actively adjusted its prices. Currently, raw material supply is relatively tight. Coupled with secondary aluminium enterprises entering their stockpiling cycle, demand for aluminium scrap has increased, and traders show a strong willingness to hold prices firm, providing solid support for secondary aluminium costs. However, increased volatility in aluminium prices has intensified the wait-and-see sentiment among downstream users, leading to marginally weaker demand and sluggish market transactions. Overall, while cost support underpins a solid price floor, slowing demand combined with fluctuating aluminium prices jointly suppresses purchase willingness. The ADC12 price is expected to continue fluctuating at highs in the short term. On the import side, current overseas ADC12 offers remained stable at USD 2,620–2,640 per tonne. As domestic prices increased actively, the immediate import loss narrowed to around RMB 100 per tonne.

Aluminium market summary: Overall, from a macro perspective, future market attention should focus on the pace of interest rate hikes in Japan and its impact on the downward trend of aluminium prices. Domestically, fundamentals currently lack strong support for sustained aluminium price increases, with weak end-use demand leading to a decline in the proportion of liquid aluminium. Subsequent changes in operating rates need close monitoring. Downstream processing enterprises maintained low sentiment for spot purchases, and spot premiums continued to widen. With improved shipments from Xinjiang and rising in-transit inventory, social inventory was expected to accumulate this week, putting pressure on price support levels.

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.