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Aluminum: Cost down inventory support, price range volatility

May 30, 2023
At present, the macro sentiment is pessimistic. Before the monetary policy under the inflation targeting system is changed, the realistic impact of the tightening cycle will be gradually deepened. The vicious transmission from the bottom up in the domestic industrial sector has given a pessimistic demand price expectation. The later variable is that if we look at the domestic economy according to the logic of recovery, without the background of major deflation and the central bank's tolerance of CPI approaching 3%, the time node of CPI rebound is approaching, which is expected to drive PPI to stop falling and rise. To stop the current vicious transmission from the bottom up. Before the above variables do not change, the domestic macro logic remains bearish.
At present, the industry end, Yunnan is approaching the wet season, and the incremental release of fermentation supply is expected. However, looking back on the overall aluminum output this year, there will not be a substantial increase. It is estimated that 41.5 million tons will be completed, with a growth rate of 3%. Demand side, the end demand is not smooth, downstream finished product inventory preference, and aluminum ingot inventory continuous to the historical position of 700,000 tons, spot trading performance is better, the monthly difference widened to more than 300, which forms a certain support for aluminum prices.
Overall, domestic macro variables are still there, further pressing the space above the aluminum price; When the demand is sluggish, the aluminum price drops along with the cost, but still leaves the profit of 2000 yuan per ton for the aluminum plant. The overall cost line of primary aluminum drops from 16800 yuan to about 16000 yuan, and there is little room for the cost to continue to fall. The aluminum plant and the pre-baking anode plant have suffered losses, and the price of electricity is relatively limited for the coming peak. The fundamental reason for the decline of aluminum price dominated by the logic of cost decline still lies in the poor consumption, which makes electrolytic aluminum plants sell aluminum ingot or aluminum water at reduced prices. However, based on the actual performance of spot and the state of destorage, the continuity of this logic is poor. It is expected that the aluminum price as a whole will maintain the range of fluctuation operation, with the price range of 17300-18600 yuan/ton.
First, the supply side
1. The supply of primary aluminum is disturbed but still maintains a low growth rate
From the data of the Bureau of Statistics, the cumulative production of electrolytic aluminum from January to March in 2023 was 13.315 million tons, with a year-on-year growth of 3.9%. Affected by the dry season in Yunnan, the production capacity in the first quarter was maintained at 40.35 million tons, and the capacity utilization rate was about 90%.
According to SMM statistics, domestic electrolytic aluminum output in April 2023 (30 days) was 3.348 million tons, up 1.5% year on year. In April, Guangxi, Guizhou and other regions continued to resume production, electrolytic aluminum daily output increased by 1,533 tons month-on-month to about 11,600 tons. From January to April, the cumulative output of electrolytic aluminum reached 13.265 million tons, up 3.9% year on year. The output of aluminum intermediate products in Southwest China climbed in April, and the ratio of aluminum to water in China increased by 2.4 percentage points month-on-month to 73.4 percent.
2. The wet season is approaching in Yunnan-Guizhou area, but the yield increase is limited
Up to now Guizhou (320,000 tons) and Sichuan (60,000 tons) have a total of 380,000 tons to resume production, while Yunnan is not expected to resume production in a large amount in the short term. It is estimated that the scale of national electrolytic aluminum production in May will be 180,000 to 200,000 tons, and new projects will be put into production mainly in Sichuan, Inner Mongolia and other places, totaling 340,000 tons, but the production progress of new projects is slow. The output is expected to be no more than 30,000 tons in May.
The wet season is approaching, but the yield increase is limited. Although some enterprises have resumed production, they have not received a clear notice of the resumption of production. The enterprises predict that the industrial electricity consumption in the province may increase in anticipation when the water and electricity are slightly improved in June, but the enterprises will rationally resume production according to the incremental electricity consumption, and the resumption cycle may be slower than the theoretical resumption pace. SMM is expected to meet the conditions for production resumption. The total scale of production resumption in the province may first reach the scale after the first production cut last year (i.e. the first production resumption of 780,000 tons), and then continue to resume production to 4.35 million tons. The time is almost to September, some enterprises or continue to increase, some conservative enterprises or stop production resumption, and wait and see the power situation in the dry season.
3. The supply elasticity of double carbon background aluminum increases, and the annual growth rate of primary aluminum supply is about 3%
Under "double carbon", the proportion of hydropower and aluminum is increasing, which restricts the expansion of thermal power aluminum capacity. In recent years, the newly added capacity is mostly concentrated in southwest China, mainly hydropower and aluminum. However, precipitation is the key to power generation, which leads to a great disturbance in the expected increase of aluminum supply. In the first quarter, about 300,000 tons of production capacity was damaged, and the follow-up release pace is still not too fast. For the annual supply of primary aluminum, 41.5 million tons, a 3% growth rate is estimated.
Two, the demand end
1. The social inventory of 700,000 tons is close to the new low in the same period, and the low inventory supports the aluminum price
On May 25, 2023, SMM statistics of domestic electrolytic aluminum ingot social inventory only 657,000 tons, compared with the domestic aluminum ingot inventory continued to be in the historical period of nearly five years of low, the trend of continuous de-stocking continued, and the speed of de-stocking is still accelerating.
On the whole, the domestic aluminum ingot inventory is in a continuous de-stocking trend, and the absolute level is low at present. In terms of the current understanding of the amount of goods in transit and the conversion ratio of aluminum water, aluminum ingot is expected to maintain a low level in the near future, but aluminum water into aluminum rod and other intermediate aluminum products increase, the demand end is still weak temporarily, the reference of aluminum ingot inventory is weakened, later need to pay attention to the recovery trend of downstream orders and aluminum ingot shipments.
2. Weak terminal demand and expectation, high inventory of downstream finished products
In April, aluminum processing industry in the "gold three" after the "silver four", significantly weaker new orders. Among them, only large-scale enterprises have stable production of building profiles, while small and medium-sized factories have seen a decline in orders. The recycled aluminum alloy industry has seen a decline in production due to the weak terminal automobile consumption and the accumulation of finished product inventory. The aluminum plate and foil industry has also reduced production due to poor terminal demand, declining profits and sluggish overseas demand. Month only industrial aluminum profiles, aluminum cables in the overall stable increase, stable on the line. For May, the aluminum processing industry began to dominate pessimism, expectations of a recovery in demand disappointed, May aluminum processing industry is expected to be under the expansion or contraction line for most sectors.
Three, cost and profit
The split of electrolytic aluminum cost mainly includes three parts: electricity price accounting for 37.5%, alumina accounting for 33.61%, pre-baked anode and other aluminum auxiliary materials accounting for 20%. It is reasonable for aluminum price to follow the logic of cost collapse under the background of poor demand. The profit of primary aluminum needs to be transferred to the downstream, but the smoothness of this logic will be greatly reduced under the background of low inventory and fast destocking pace. Therefore, the state of aluminum price shows interval fluctuation.
1, raw materials are in surplus pattern, coal price dip affects the gravity of electricity price
At present alumina prices are still in the downward channel, excess is the main factor. With the continuous price correction, some aluminum oxide plants in Shanxi and Henan have experienced a short period of profit, and now they are back to the state of loss. It is necessary to continue to pay attention to the resumption of production of electrolytic aluminum plants in Yunnan. If the production of Yunnan aluminum plants is resumed, the current decline of alumina can be recovered; otherwise, the price will continue to fall, and the alumina production capacity in high-cost areas will be difficult.
The price of pre-baking anode is stable. In May, the benchmark purchase price of an aluminum factory in Shandong was 4,525 yuan/ton. The pre-baking anode enterprises have been in a downward trend for a long time, and the production pressure of enterprises has increased.
The overall primary aluminum cost line moved from 16800 yuan to about 16000 yuan, and the cost continues to fall little space. Aluminum oxide and prebaked anode plants are already losing money, and there is relatively little scope for prices to fall in the run-up to peak demand.
2. The profit of primary aluminum production is 1000-2000 yuan, and whether it needs to yield profit downstream depends on the demand
Raw material products do not have the ability to demand profit from electrolytic aluminum plants, which is determined by its own supply and demand pattern. The profit of electrolytic aluminum once expanded to around 2000 yuan with good profit status and sustainability. The fundamental reason for the decline of aluminum price dominated by the logic of cost decline still lies in poor consumption, which makes electrolytic aluminum plants sell aluminum ingot or aluminum water at reduced prices. However, based on the actual performance of spot and destocking status, the price decline led by this logic is not enough support.
(www.profiles-aluminum.com; sales@profiles-aluminum.com).