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Aluminum: Demand remains resilient futures prices will be high volatility

September 19, 2023
After entering September, driven by favorable domestic policy factors, the price center of the main contract of Shanghai aluminum has significantly increased compared with the previous period, and the highest price has rushed to 19,585 yuan/ton, but failed to break through the 20,000 mark. With the weakening of upward momentum, the current price is hovering around 19,000 yuan/ton. In the context of the contradiction between supply and demand is not obvious, it is expected that the future Shanghai aluminum will be dominated by high shock pattern.
Overseas electrolytic aluminum supply pressure is small
In 2022, the Russian-Ukrainian conflict triggered an energy crisis, and the price of electricity in Europe increased significantly, which promoted the cost focus of European electrolytic aluminum plants to move up, and many manufacturers have chosen to stop production or reduce production in response. This year, due to the tight cash flow of some European electrolytic aluminum plants, weak downstream demand, and high start-up and shutdown costs of electrolytic aluminum production capacity, the European electrolytic aluminum production momentum is insufficient. Since the second quarter, domestic aluminum prices have been stronger than LME aluminum prices, and overseas aluminum plants have suffered greater losses. According to the global aluminum cost curve and the average aluminum price in the third quarter of the domestic and foreign markets, it is estimated that 96% of domestic aluminum mills can achieve cash profits, while only 84% of overseas aluminum mills can achieve cash profits. In the second half of the year, only five aluminum plants in Brazil, Russia, Indonesia, Canada and France have plans to increase production, totaling 325,000 tons. It is expected that the resumption of production of overseas electrolytic aluminum by the end of the year will be slow and the supply pressure will be small.
Electrolytic aluminum enterprises have steadily resumed production
Since this year, the Southwest electrolytic aluminum enterprises have steadily promoted the resumption of work and production. After experiencing three rounds of power rationing measures from 2022 to 2023, the operating rate of Yunnan electrolytic aluminum enterprises has fallen to 70%. In June, the southwest region entered the rainy period, and the aluminum plants such as Yunnan Cloud Aluminum, Yunnan Shenhuo, Yunnan Hongtai and Shuangyuan Aluminum continued to resume production. According to SMM statistics, from January to August this year, domestic electrolytic aluminum production reached 27.299 million tons, an increase of 2.8%. From January to August, the total amount of domestic ingot was about 8.18 million tons, down 12.2% year-on-year. Among them, electrolytic aluminum production in August was 3.623 million tons, an increase of 3.9%. In August, domestic aluminum water increased slightly by 0.2% to 72.8% from the previous month, an increase of 4.8%. In August, the operating rate of electrolytic aluminum was about 94.7%, an increase of 1.4%. As of the end of August, the domestic electrolytic aluminum production capacity was about 45.19 million tons.
In September, the growth rate of domestic electrolytic aluminum supply narrowed, Yunnan has resumed production enterprises, Sichuan has no plan to resume production, and the domestic projects in production increase are mainly transferred from Shandong to Yunnan. Up to now, the operating capacity of domestic electrolytic aluminum is about 42.78 million tons, combined with the capacity changes in other regions, it is expected that the operating capacity will increase to about 42.95 million tons by the end of September. The total production of electrolytic aluminum in September is expected to increase by 5.1% year-on-year to 3.51 million tons. In case of unexpected situations such as unlimited production on the supply side, electrolytic aluminum production is expected to be 41.5 million tons this year, an increase of 3.56%. It is still necessary to continue to pay attention to the operation of power and electrolytic aluminum enterprises in Southwest and other regions.
In terms of electrolytic aluminum imports, domestic electrolytic aluminum imports from January to July this year reached 602,000 tons, a cumulative increase of 142.48%. Among them, electrolytic aluminum imports in July were 116,600 tons, an increase of 30.4% month-on-month and 128.4% year-on-year. From January to July, the net import of electrolytic aluminum reached 521,700 tons, an increase of 715.33%. European and American sanctions on Rusal have deepened the structural contradictions in the global supply of aluminum ingots, and China's imports of Rusal have increased significantly. From January to July, Russian aluminum imports were 522,300 tons, accounting for 86.75% of the total imports. The recent domestic import window is open, overseas aluminum ingots on the way and the inflow continues to grow, but many overseas aluminum ingots trace elements and size do not meet the raw material requirements of some terminals, the price lacks obvious advantages, and the downstream replenment of overseas aluminum ingots is not highly enthusiastic. Under the influence of the overseas smelter director's order, the net import of aluminum ingot will be maintained in the later period.
Domestic unwrought rolled aluminum and aluminum exports have declined significantly
In August 2023, domestic exports of unwrought rolled aluminum and aluminum were 490000 tons, down 9.3% year-on-year and up 0.09% month-on-month; From January to August 2023, the total domestic exports of unwrought rolled aluminum and aluminum reached 3.787 million tons, down 20.7% year-on-year. The recent interest rate hike of the Federal Reserve and the introduction of tariff policies in Mexico have had a certain impact on China's aluminum exports. Domestic aluminum export profits fluctuate little, from the mainstream aluminum plate with foil and aluminum profile export enterprises export orders, is expected in September domestic unwrought aluminum and aluminum exports than in August stable.
Electrolytic aluminum inventory low fluctuation
Although Yunnan electrolytic aluminum enterprises resume production faster, since mid-June, the domestic aluminum social inventory has continued to hover at a low level near 500,000 tons, in addition to the impact of high aluminum water conversion ratio, to a certain extent, it is also supported by the demand for real estate completion, photovoltaic and white goods industry. Taking photovoltaic aluminum as an example, the output of aluminum rods from January to July was 9.345 million tons, an increase of 1.2056 million tons year-on-year, of which more than 80% of the increase came from the demand for photovoltaic aluminum. As of September 18, the domestic electrolytic aluminum ingots social inventory of 529,000 tons, an increase of 5,000 tons from September 11, a decline of 172,000 tons from the same period last year. At present, the consumer side of aluminum products is still resilient, there are signs of slowing down the arrival pressure, and the change trend of domestic aluminum ingot inventory supply is slightly weakened.
The cost of electrolytic aluminum still has upward space
The total cost of domestic electrolytic aluminum in August was 15,948 yuan/ton, up 15.8 yuan/ton from July, because the price increase of electrolytic aluminum in August exceeded the increase in the cost of electrolytic aluminum, making the profit of electrolytic aluminum in August reached 2,705 yuan/ton, up 285 yuan/ton from July.
After entering September, the focus of electrolytic aluminum cost as a whole moved up, and there was a slight drop last week. As of September 14, the total cost of electrolytic aluminum in China was 15,973.18 yuan/ton, up 36.64 yuan/ton from September 1, and down 1,996.82 yuan/ton from the same period last year. On the one hand, the price of alumina has been pushed higher by multiple factors such as improved market sentiment, and the cost of alumina has reached 5646.03 yuan/ton on September 14. On the other hand, the safety inspection situation in the main producing areas is grim, some coal mines have stopped production for maintenance, coal price performance is strong, the factory inventory of mainstream self-owned power plants is high, and the coal purchase price has not been adjusted higher. On September 14, the cost of electricity reached 5,494.5 yuan/ton.
Electrolytic aluminum industry profits have narrowed slightly in the recent past. On September 14, the profit of electrolytic aluminum was 3,456.83 yuan/ton, an increase of 2,796.83 yuan/ton over the same period last year. Considering the approaching of the plateau in Southwest China and the rising cost of thermal coal, the cost of electrolytic aluminum in the later period still has upward room. Under the background of strong aluminum prices, the profitability of the electrolytic aluminum industry is expected to continue to improve.
The auto industry ushered in the 'gold nine silver ten' sales season
From January to August this year, automobile production and sales were 18.225 million and 18.21 million, respectively, an increase of 7.4% and 8%. Among them, the auto market performed better than expected in August, and the national automobile production and sales achieved double growth compared with the previous year. Auto production and sales in August were 2.575 million and 2.582 million, up 7.2% and 8.2% from the previous month and 7.5% and 8.4% from the same period last year. In August, driven by factors such as the national promotion fee policy and the preferential promotion of car companies, the demand for car purchases continued to be released, and the auto market stabilized and rose, and the performance was not weak in the off-season. In August, the comprehensive inventory coefficient of automobile dealers was 1.54, down 9.4% from the previous month, up 5.5% from the same period last year, and the inventory level was above the warning line.
The auto industry has entered the 'gold nine silver ten' sales season, and the effect of various policies continues to show, benefiting from the small auto shows held around the country, the major car companies have launched new products, superimposing the holiday effect of the Mid-Autumn Festival and National Day holiday, the auto market demand will be further released. Under the background of good macroeconomic, the car consumption boom in the fourth quarter will continue to increase. The CAAM forecasts that China will sell 27.6 million vehicles this year, up about 3 percent year on year.
The support below Shanghai aluminum is obvious
On the macro level, inflation pressure in the United States remains, and the market is concerned that the Federal Reserve may continue to raise interest rates. Domestic economic credit data in August was better than expected, real estate continued to promote good, second-hand housing transaction market showed signs of recovery, and risk appetite at home and abroad appeared differentiated. Basically, on the supply side, the current domestic electrolytic aluminum production as a whole is stable, with the large-scale resumption of production is basically over, the future growth rate of electrolytic aluminum production and supply will gradually slow down compared with the previous period. In the context of the opening of the import window, electrolytic aluminum imports maintained a growing trend, of which Russia and Southeast Asia accounted for a relatively high volume of aluminum imports. On the demand side, benefiting from the boost of demand from the automotive and photovoltaic industries, the operating rate of the aluminum downstream processing profile plate has picked up slightly recently, and as of September 15, the weekly operating rate of aluminum profile enterprises was 63.6%, up 0.2% from a week ago. In combination with inventory, although there are signs of a small accumulation of aluminum ingot inventory in the near future, it is still at a low level in nearly five years, providing strong support for aluminum prices. In general, in the context of the contradiction between supply and demand is not obvious, it is expected that Shanghai aluminum will be dominated by high and volatile markets in the later period. The pressure above the main contract is 20,000 yuan/ton, and the support below is 18,800 yuan/ton.
(www.profiles-aluminum.com; sales@profiles-aluminum.com).