Macro front, the Chinese government continues to boost consumption, with the Ministry of Finance stating that fiscal policy in 2025 will be highly proactive, sending bullish signals to the market. Overseas, the US overall CPI saw a mild rebound to 2.9% YoY, leading traders to increase bets on a US Fed interest rate cut in June, with the likelihood of two rate cuts this year rising. December PPI data came in at 3.3%, below the expected 3.4%, falling short of expectations and reigniting market inflation sentiment. Additionally, the US has recently introduced intensive trade restrictions targeting China, to which the Chinese Ministry of Commerce responded that sanctions, containment, and suppression cannot hinder China's progress, with specific impacts yet to be monitored.
Fundamentals side, domestic aluminum operating capacity remained stable, with no reports of production cuts during the week. Enterprises that previously cut production or are awaiting resumption have not planned to restart, mainly due to ongoing losses and low enthusiasm for resumption. On the cost side, aluminum production costs eased this week. As of Thursday, the immediate full average cost of domestic aluminum was approximately 19,584 yuan/mt, down 1,368 yuan/mt WoW. Specifically, alumina costs declined this week, but the center of spot alumina prices shifted downward at a slower pace. Market willingness to purchase high-priced alumina decreased, and spot alumina prices are expected to continue pulling back, weakening cost support for aluminum. In south-west China, electricity prices remained high, and related enterprises continued to face significant losses. On the demand side, overall demand weakened significantly this week as aluminum processing plants gradually entered the Chinese New Year holiday, leading to a decline in operating rates. Regarding inventory, due to delayed shipments and downstream stocking, aluminum ingot social inventory continued to deplete, reaching a three-year low, providing upward momentum for aluminum prices.
In summary, the macro front presents a mix of bullish and bearish factors, with domestic efforts to boost consumption and renewed inflation sentiment in overseas markets. Fundamentals side, supply disruptions decreased, spot alumina prices pulled back but at a slower pace, and combined with rising electricity prices during the dry season, cost support for aluminum remains, with over half of enterprises still in a loss-making state. On the demand side, as the Chinese New Year holiday approaches, aluminum processing plants began to shut down during the week, leading to a significant weakening in demand. Social inventory may enter a pre-holiday inventory buildup cycle. Additionally, attention should be paid to the impact of falling spot alumina prices on aluminum costs, as well as the downstream holiday schedule and pre-holiday stocking pace. The most-traded SHFE aluminum contract is expected to operate around 19,900-20,500 yuan/mt next week, while LME aluminum is expected to range between $2,550-2,680/mt.
Data source: SMM
