Fundamental weakness makes it difficult to sustain upward momentum in aluminium prices; short-term price correction observed

Futures Market: Overnight, the most-traded SHFE aluminium 2504 contract opened at RMB 20,670 per tonne, hit a high of RMB 20,730 per tonne, a low of RMB 20,590 per tonne, and closed at RMB 20,600 per tonne, down RMB 135 per tonne or 0.65 per cent. Yesterday, LME aluminium opened at USD 2,677 per tonne, reached a high of USD 2,679 per tonne, a low of USD 2,641 per tonne, and closed at USD 2,652.5 per tonne, down USD 23 per tonne or 0.86 per cent.

Macro: (1) Russian President Vladimir Putin stated that Russia does not oppose Ukraine retaining its statehood, but its territory should not be used as a hostile base against Russia. He also revealed that Russia and the US could agree on a 50 per cent reduction in armaments. Putin further mentioned that companies from both countries have started discussing cooperative projects, and Russia plans to resume aluminium product exports to the US, with an export volume of 2 million mt, which would help stabilise the product's price. (Bearish ★)

(2) On the afternoon of February 24, Chinese President Xi Jinping had a phone call with Russian President Vladimir Putin upon request. Xi emphasised that the development strategies and foreign policies of China and Russia are long-term. Regardless of international changes, China-Russia relations will steadily progress, aiding each other's development and revitalisation while injecting stability and positive energy into international relations. (Neutral ★)

Fundamentals: (1) SMM reported on February 24 that aluminium ingot outflows from warehouses totalled 119,100 tonnes in the past week, an increase of 7,600 tonnes W-o-W. Aluminium billet outflows from warehouses totalled 51,500 tonnes in the past week, an increase of 7,300 tonnes W-o-W. (Bullish ★)

(2) SMM reported on February 24 that in the third week after the holiday, aluminium ingot and billet inventories increased by 69,000 tonnes, up 6.1 per cent W-o-W. (Bearish ★)

(3) On February 24, LME aluminium inventory stood at 535,900 tonnes, down 4,000 tonnes or 0.74 per cent from the previous day. Over the past week, LME aluminium inventory decreased by 20,100 tonnes or 3.61 per cent. Over the past month, LME aluminium inventory dropped by 59,300 tonnes or 9.96 per cent. (Bullish ★)

Primary aluminium market: On Monday morning, the front-month SHFE aluminium contract fluctuated downward, with a significant decline. Downstream bearish sentiment and wait-and-see attitudes resurfaced, with moderate purchasing activity.

Transactions and shipments were concentrated among traders, with relatively active trading. Specifically, trading in East China was moderate, and spot discounts remained stable.

On Monday, SMM A00 aluminium spot was at a discount of RMB 70 per tonne against the SHFE aluminium 2503 contract, unchanged from the previous trading day. SMM A00 aluminium ingot was recorded at RMB 20,590 per tonne, down RMB 230 per tonne from the previous trading day.

In central China, downstream demand was weak, and the market focused on shipments, with spot discounts widening. Actual transactions in the market were mainly at a discount of RMB 10 per tonne against SMM central China prices.

On Monday, the Henan-Shanghai price spread was around a discount of RMB 220 per tonne. SMM central China A00 aluminium spot was recorded at RMB 20,440 per tonne, down RMB 240 per tonne from the previous trading day.

Secondary aluminium raw materials: On Monday, primary aluminium spot prices dropped significantly by RMB 230 per tonne from the previous trading day, with SMM A00 spot closing at RMB 20,590 per tonne. Aluminium scrap market prices followed the aluminium price pullback.

On Monday, baled UBC aluminium scrap was quoted at RMB 15,050-15,850 per tonne (tax excluded), and shredded aluminium tense scrap was quoted at RMB 16,450-18,050 per tonne (liquid aluminium, tax excluded).

In the short term, with upstream and downstream resuming production, procurement volumes slightly increased compared to before. However, SMM learned that alloy plants' operating rates remain moderate, and bargain down purchasing prices persist.

Aluminium scrap prices are expected to fluctuate within a limited range in the short term.

Secondary aluminium alloy: On Monday, aluminium prices ended their consecutive gains, with SMM A00 aluminium prices dropping by RMB 230 per tonne from the previous trading day to RMB 20,590 per tonne. Some secondary aluminium prices followed the decline.

Domestically, SMM ADC12 prices fell by RMB 100 per tonne to RMB 21,200-21,400 per tonne. In the import market, overseas ADC12 prices remained stable at USD 2,480-2,500 per tonne. With domestic prices declining, the immediate profit margin for importing ADC12 narrowed to near the break-even point.

On Monday, aluminium prices shifted downward, and secondary aluminium market quotations remained mixed. Some companies retracted last Friday's gains and adjusted prices downward by RMB 100 per tonne in line with the market, while others maintained firm quotations supported by costs. In the short term, ADC12 prices are expected to continue fluctuating rangebound.

The upside room is constrained by supply growth pressure and the slow pace of demand recovery, while the downside is supported by aluminium scrap costs. Attention should be paid to recent raw material circulation and the recovery of end-use consumption.

Summary: Macro side, market surveys indicate that signs of a slowdown in US economic growth have become more evident. According to S&P Global, US business activity expansion in February slowed to its lowest level since September 2023, reflecting cautious corporate sentiment toward the economic outlook.

Fundamentals side, cost support continues to weaken; the supply side remains stable with slight increases, with overall changes being relatively small; the demand side, driven by rising aluminium prices, end-user enterprises adopted a wait-and-see approach, and downstream aluminium semis enterprises saw limited shipments. Factory raw material inventory turnover days struggled to recover, focusing on just-in-time inventory replenishment and consuming finished product inventories.

On the inventory side, SMM domestic aluminium ingot and billet social inventory climbed to 1.194 million tonnes, surpassing the key thresholds of 1 million tonnes and 1.1 million tonnes, and is now approaching the 1.2 million tonnes mark. Most suppliers are optimistic about aluminium prices in the future, and it is expected that after entering March, the inventory turning point will gradually emerge.

With policy support, aluminium ingot inventory is expected to remain low in the long term, and spot market sentiment of holding back cargoes is strengthening. Under the strong expectations but weak reality scenario, aluminium prices are experiencing significant fluctuations driven by macro sentiment trading expectations. However, weak fundamentals are unlikely to provide sustained upward momentum for aluminium prices, and short-term price corrections are expected.

Source: SMM