Macro front, over the past two weeks, two important meetings held by the central bank both proposed "timely RRR cuts and interest rate cuts." This sends a clear signal of strengthening monetary policy adjustments, and further RRR cuts and interest rate cuts this year are expected. The US dollar index fluctuated at highs, US economic data was bearish, and US Fed officials adopted a new stance on interest rate cuts, deciding to slow the pace of rate cuts in the coming months. The anti-dumping uncertainty still looms over the market, with significant risks of tariff hikes on China if Trump returns to office.
Fundamentals side, in early January, domestic aluminum operating capacity remained stable. According to SMM, no additional companies are currently planning production cuts, with the annualized domestic aluminum operating capacity stable at 43.53 million mt/year. This week, the weekly operating rate of alumina slightly increased, while demand remained relatively stable. As low-price transactions gradually emerged in the market, some suppliers became more active in selling, leading to an increase in the availability of spot alumina in the market and a wider discount of spot transactions compared to online prices. In the short term, some alumina capacity in Shanxi is expected to resume production, with supply anticipated to increase, while demand for aluminum remains relatively stable. The alumina fundamentals are expected to maintain a slight surplus, and spot alumina prices are likely to continue their downward trend in the short term. As a result, the cost side of the aluminum industry may continue to decline, with the immediate full average cost of aluminum at approximately 20,952 yuan/mt, down 538 yuan/mt WoW. Inventory-wise, the mid-week's unexpected destocking undoubtedly supported and boosted aluminum prices, but its sustainability remains uncertain. Spot market performance varied across regions, but as the off-season deepens, downstream sectors are gradually entering the Chinese New Year holiday rhythm, and demand is expected to weaken further.
In summary, the macro front presents a mix of bullish and bearish factors, with the Chinese government continuing efforts to boost consumption, while the uncertainty around the US Fed's rate cut pace increases. Fundamentals side, aluminum operating capacity remained stable in early January, while alumina fundamentals maintained a slight surplus, with spot alumina prices likely to continue their downward trend in the short term, and the cost side of the aluminum industry expected to keep declining. On the demand side, market demand continues to weaken during the off-season, with operating rates in the aluminum processing industry declining steadily. Some aluminum processing plants are nearing holiday shutdowns, and although pre-holiday concentrated restocking has led to unexpected destocking that temporarily boosted aluminum prices, its sustainability is expected to be limited. Key focuses include the impact of falling spot alumina prices on the cost side of aluminum, as well as the downstream holiday schedule and the continuity of pre-holiday restocking. Next week, the most-traded SHFE aluminum contract is expected to fluctuate around 19,350-20,250 yuan/mt, while LME aluminum is expected to fluctuate around $2,450-2,650/mt.
Data source: SMM
