Review of LME aluminium trends during the Chinese New Year holiday: Pre-holiday demand weakens, LME aluminium fluctuates and consolidates

Before the Chinese New Year holiday, domestic aluminium prices shifted lower as end-use consumption weakened. On January 27, the most-traded SHFE aluminium contract (AL2503) closed at RMB 20,240 per tonne, down 0.78 per cent on the day. During the Chinese New Year holiday (January 28 to February 4), the SHFE aluminium market was closed, while LME aluminium prices maintained a fluctuating trend, with a high of US$2,634 per tonne and a low of $2,553 per tonne. On February 4, LME aluminium closed at US$2,637.5 per tonne, up 1.11 per cent over the period.

Macro economy: US fed maintains cautious stance on rates, US and eurozone economies slow

The US Fed recently stated that there is no urgent need for an interest rate cut until inflation and employment data require further adjustments, keeping the federal funds rate in the 4.25 per cent to 4.50 per cent range. Fed official Raphael Bostic noted that while inflation is expected to continue declining, heightened economic uncertainty necessitates cautious policy adjustments to avoid overcorrection. The market remains focused on the timing and scale of future Fed rate cuts.

In Q4 2024, US GDP growth slowed to 2.3 per cent, down from 3.1 per cent in Q3, reflecting weakened growth momentum. Although inflation has significantly eased, the market remains wary of potential upside risks, particularly additional tariff policies that may be implemented by the Trump administration, which could increase cost pressure. Affected by economic data, the US dollar index fell below 107.8 on January 31, weakening the US dollar, while the 10-year US Treasury yield hovered around 4.5 per cent.

In the Eurozone, Q4 2024 economic growth stagnated, recording 0.0 per cent Q-o-Q, with risks of weak demand and sluggish business activity intensifying. To stimulate the economy, the European Central Bank decided to cut the benchmark interest rate by 25 basis points to 2.75 per cent, marking the fifth rate cut in this cycle and underscoring the urgency to boost economic growth.

 EU sanctions tighten, US tariffs add pressure, global aluminium supply chain faces adjustments

EU expands restrictions on Russian aluminium imports: On January 16, 2025, the EU announced plans to expand import restrictions on Russian aluminium products in its 16th round of sanctions in response to the ongoing Ukraine crisis. However, as Russia has successfully redirected its aluminium exports to non-sanctioned countries, the global impact of this measure is expected to be limited. Following the announcement, LME aluminium briefly surpassed US$2,600 per tonne, hitting a one-month high before pulling back. The related sanctions are expected to be finalised in February.

Since the outbreak of the Russia-Ukraine conflict, the EU has significantly reduced its imports of Russian aluminium, with Russian aluminium now accounting for approximately 6 per cent of the EU's total primary aluminium imports, a sharp decline from 2022. Supplies from the Middle East, India, and Southeast Asia have gradually filled the gap in the EU market. Meanwhile, Russian aluminium is increasingly flowing into China, with China importing 263,000 tonnes of Russian aluminium in the first three quarters of 2024, accounting for 33 per cent of Russia's total aluminium exports. Considering China's aluminium production has nearly reached its capacity ceiling of 45 million tonnes, China's demand for imported aluminium is expected to persist.

US tariff hike impacts Canadian aluminium trade: On February 2, Trump announced a 25 per cent tariff on aluminium imports from Canada and Mexico, effective February 4, along with an additional 10 per cent tariff on Chinese imports on top of existing tariffs. For China, the aluminium semis export tax rebate policy cancelled in December last year will partially offset the tariff impact. However, Canada faces greater pressure—93.75 per cent of its primary aluminium exports, totalling 1.55 million tonnes in 2024, were destined for the US, while the US domestic primary aluminium supply only meets one-sixth of its consumption. Under these circumstances, the tariff hike will inevitably push up US domestic aluminium prices, ultimately affecting end-use consumers. The Canadian government is negotiating with the US to seek tariff exemptions or other trade compensation measures. On February 4, Mexico and Canada reached an agreement with the US to delay the tariff implementation by 30 days in exchange for enhanced border security measures with the US.

Amid tariff expectations, Canadian aluminium traders have begun arbitrage activities in the European market. According to SMM, the Rotterdam P1020A dp premium has dropped from US$370 per tonne in early January to US$320-330 per tonne, indicating market adjustments to hedge against US tariff policies. If the tariff policy continues, more Canadian aluminium may flow into the European market, further impacting global trade patterns and the European market's price structure.

News sourced from: SMM