US imposes 10% tariff; LME aluminium maintains sideways movement during Chinese New Year

Futures Market: SHFE aluminium was closed overnight due to the Chinese New Year holiday. On Tuesday, February 4, 2025, LME aluminium opened at US$2,622 per tonne, reached a high of US$2,644.5 per tonne, a low of US$2,611 per tonne, and closed at US$2,629 per tonne, up US$8.5 per tonne or 0.32 per cent.

Macro: (1) On February 1, US President Donald Trump signed an executive order to raise a 10% tariff on goods imported from China. (Bearish★★) (2) Due to factors such as the approaching Chinese New Year holiday and the mass return of employees to their hometowns, the manufacturing PMI in January was 49.1 per cent, down 1.0 percentage point from the previous month. (Bearish★) (3) On January 29, the US Fed concluded its two-day monetary policy meeting and announced that the federal funds rate target range would remain at 4.25 per cent - 4.5 per cent. This marked the first pause in the Fed's rate-cutting cycle since it began in September last year, aligning with widespread expectations. (Neutral) (4) US job vacancies hit their lowest level since September last year. The US factory orders MoM in December recorded the largest decline since June 2024. (Bearish★)

Fundamentals: (1) According to SMM statistics, as of January 27, aluminium ingot inventory in major domestic consumption areas stood at 492,000 tonnes, up 32,000 tonnes from the previous week. Aluminium billet inventory in major domestic consumption areas was 222,800 tonnes, up 22,800 tonnes from the previous Thursday. (Bearish★) (2) SMM data showed that the average tax-inclusive full cost of the Chinese aluminium industry in January 2025 was 19,989 per tonne, down 5.3 per cent M-o-M, mainly due to a sharp pullback in spot alumina prices during the period. In February, the monthly average spot alumina price is expected to decline significantly, further driving down aluminium costs. (Bearish★) (3) According to the SMM survey, the aluminium processing industry PMI in January recorded 40.4 per cent, mainly due to the impact of the Chinese New Year holiday. In February, as the holiday ends, aluminium processing enterprises are expected to gradually resume production, with the PMI likely to rebound above the 50 mark. (Bullish★)

Primary aluminium market: On the last trading day before the holiday, January 27, the SHFE aluminium front-month contract fluctuated downward to around RMB 20,170 per tonne in early trading. The East China market was almost entirely immersed in the holiday atmosphere, with sluggish market activity and trading sentiment hitting rock bottom, making transactions difficult. SMM A00 aluminium was quoted at a discount of RMB 20 per tonne to the SHFE 2502 contract, flat from the previous trading day. SMM A00 aluminium ingot was recorded at RMB 20,120 per tonne, down RMB 70 per tonne from the previous trading day. In terms of inventory, weekly inventory in major aluminium consumption areas monitored by SMM was 492,000 tonnes, with an inventory buildup of 32,000 tonnes. The turning point for social inventory buildup has arrived, but the total inventory remains relatively low. Attention should be paid to inventory changes during the Chinese New Year holiday, which may fall short of market expectations, limiting the expansion of seasonal spot market discounts.

Secondary aluminium raw materials: Last Monday, most aluminium scrap suppliers entered holiday mode, and aluminium scrap prices stabilised. Baled UBC aluminium scrap was quoted at RMB 14,850-15,700 per tonne (excluding tax), while shredded aluminium tense scrap was quoted at RMB 16,350-17,850 per tonne (liquid aluminium, excluding tax).

News source: SMM