Supply-demand marginal changes are limited, and aluminium prices consolidate at high levels, supported by macro factors

Futures: During the night session on Jan 26, the most-traded SHFE aluminium 2603 contract opened at RMB 24,400 per tonne, reached a high of RMB 24,430 per tonne, touched a low of RMB 24,225 per tonne, and finally closed at RMB 24,380 per tonne, up RMB 165 per tonne or 0.68 per cent from the previous close. Technically, the MA moving averages showed a divergent arrangement (MA5: 24,254.00 > MA10: 24,130.50 < MA20: 24,230.00 > MA40: 23,914.00), and the MACD 4-hour candlestick continued to show a green bar (DIFF: 142.81, DEA: 174.33). In terms of open interest, the night session open interest was about 322,000 lots, an increase of 148 lots from the daytime session. LME aluminium opened at USD3,169 per tonne, hit a high of USD3,204 per tonne, touched a low of USD3,159.5 per tonne, and finally closed at USD3,195.5 per tonne, up 0.69 per cent from the previous day. Trading volume was 25,000 lots, down 3,502 lots, and open interest was 699,000 lots, up 5,687 lots.

Macro front: This Thursday, Jan 29, Beijing time, the US Fed is expected to announce its first monetary policy interest rate decision of the year. Goldman Sachs expects the impact of this decision on the market to likely be "uneventful," with the Fed only making minor adjustments to its monetary policy stance. However, if news emerges from the White House regarding Powell's successor, it could have a greater impact on the market. (Neutral) In 2026, the Ministry of Commerce will deeply implement special actions to boost consumption, focusing on three aspects: introducing policies, organising events, and optimising scenarios. (Bullish★)

Fundamentals: According to an SMM survey, China's ESS battery cabin shipments in 2025 were about 400 GWh, accounting for over 80 per cent of the global share. Based on SMM's calculated ESS single consumption of 1,780  tonne per GWh and global ESS battery cabin shipments, the corresponding aluminium semis demand for global ESS in 2025 was 850,000  tonne, of which domestic consumption accounted for about 710,000  tonne of aluminium semis. It is estimated that domestic demand for aluminium semis for ESS in 2026 will still see an increase of 280,000 tonnes.

Primary aluminium market: In the early session, SHFE aluminium 2602 first rose then fell, with the price center slightly lower than the previous trading day. On Tuesday, overall market trading sentiment weakened, with downstream smelters showing low purchasing enthusiasm. The mainstream transaction prices were mainly at a discount of RMB 20 per tonne to the average price. The East China market selling sentiment index on Tuesday was 2.9, down 0.06 w-o-w; the buying sentiment index was 2.37, down 0.1 w-o-w. SMM A00 aluminium was quoted at RMB 24,030 per tonne, down from the previous trading day. On Tuesday, downstream processing enterprises in the central China market faced about 50 per cent production restrictions due to repeated environmental protection-related controls, leading to a significant drop in traders' buying sentiment. However, suppliers showed a significant willingness to sell at highs, resulting in substantial market shipments.

Actual transaction prices declined throughout, dropping from parity with the central China price before the opening to a discount of RMB 30 yuan to the central China price, with a few traders actually transacting at a discount of RMB 50 yuan to the central China price. On Tuesday, the selling sentiment index in the central China market was 2.83, up 0.02 w-o-w; the purchasing sentiment index was 2.28, down 0.05 w-o-w. SMM A00 aluminium in central China closed at RMB 23,940 per tonne, down RMB 90 per tonne from the previous trading day, at a discount of RMB 250 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 90 per tonne, widening by RMB 10 per tonne from the previous trading day.

Aluminium scrap: On Tuesday, spot primary aluminium prices edged down from the previous trading day, with SMM A00 aluminium closing at RMB 24,030 per tonne. Aluminium scrap market prices showed significant divergence on Tuesday, with varied adjustments. Baled UBC was mainly offered at RMB 17,450-17,850 per tonne (ex-tax), while shredded aluminium tensile scrap (priced based on aluminium content) was mainly offered at RMB 19,400-20,000 per tonne (ex-tax). In terms of the price difference between A00 aluminium and aluminium scrap, the price difference between A00 aluminium and mixed aluminium extrusion scrap free of paint in Foshan was RMB 3,538 per tonne on January 26, and the price difference between A00 aluminium and shredded aluminium tensile scrap was RMB 2,731 per tonne.

On Tuesday, regions such as Henan, Foshan, Jiangxi, and Anhui caught up with last week's aluminium price gains, while other regions adjusted quotes lower following the aluminium price decline. Against the backdrop of high aluminium prices forcing scrap aluminium to follow suit, a situation of "nominal prices with no actual transactions" has emerged, dampening downstream buying sentiment and leading to purchasing as needed. The aluminium scrap market is expected to hover at highs this week, with shredded aluminium tensile scrap (priced based on aluminium content) mainly ranging between RMB 19,200-19,800 per tonne (ex-tax). Downside pressures persist as the Chinese New Year approaches, with enterprises gradually entering holiday schedules. Scrap yards closing early reduces market liquidity, downstream operating rates remain sluggish, and resistance to high prices is strong. Close attention should be paid to primary aluminium trends, weather changes, and pre-holiday production halts and holiday schedules to guard against the risk of a pullback from highs.

Secondary aluminium alloy: Futures side, the aluminium alloy 2603 contract opened at RMB 23,175 per tonne on Tuesday, surged to RMB 23,320 per tonne in the morning session, then quickly pulled back, touching a low of RMB 22,905 per tonne. As of 14:00, the contract closed at RMB 22,990 per tonne, down RMB 135 per tonne or 0.63 per cent from the previous trading day, with the movement primarily driven by bulls reducing positions. In the spot market, the A00 aluminium price fell RMB 80 per tonne to RMB 24,030 per tonne on Tuesday, while the SMM ADC12 price held steady at RMB 24,000 per tonne. Amid the declining price trend, sentiment for price adjustments in the secondary aluminium market was low, with most producers maintaining stable prices.

Demand side, inhibited by high prices and weak pre-holiday stockpiling motivation, downstream procurement focused on rigid demand, resulting in an overall sluggish trading atmosphere. Supply side faced multiple disruptions: expectations for adjustments to regional tax burden policies, enhanced compliance checks on reverse invoicing in some areas, logistics impacts from snowfall, and repeated environmental protection-driven production restrictions in regions like central China, leading some enterprises to cut production or halt operations early for the holiday. The industry operating rate is expected to show a downward trend in the short term. Looking ahead, although high aluminium prices and seasonal off-season demand are suppressing market activity, cost-side aluminium scrap prices are providing support, coupled with supply tightness driven by policy and environmental protection factors. Secondary aluminium alloy prices are expected to continue fluctuating at highs in the short term. Subsequent focus should be on raw material flow, changes in downstream operating rates, and the evolution of pre-holiday stockpiling sentiment.

Aluminium market summary: On the macro front, David Mericle, Chief US Economist at Goldman Sachs, stated in his investor report that the US Fed is expected to hold rates steady this week, with two potential interest rate cuts later this year, the first likely in June. With stable rate cut expectations, market risk appetite remains steady. Domestically, 2026 macro policies clearly focus on strengthening the domestic circulation as the driving force, aiming to continuously release endogenous growth momentum by comprehensively expanding domestic demand. Supply side, domestic and Indonesian aluminium projects continue ramping up production, with daily average production steadily increasing, sustaining the supply growth trend.

Demand side shows signs of stabilisation; after aluminium price fluctuations narrowed, downstream processing enterprises' operating rates rebounded slightly, supported by orders on hand, and warehouse withdrawals increased YoY. Last week, the comprehensive operating rate for aluminium processing recorded 60.9 per cent, up 0.7 percentage points w-o-w. On the inventory side, social inventory on Monday this week increased by 28,000 tonnes compared to last Monday and by 34,000 tonnes compared to last Thursday, continuing the overall inventory buildup trend. The proportion of liquid aluminium continues to decline, reflecting still weak demand for liquid aluminium, with structural contradictions yet to be resolved. Overall, eased macro risk sentiment provides phased bottom support for aluminium prices, but high inventory limits upside potential. SMM aluminium prices are expected to consolidate at highs in the short term.

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.