Fundamentals take a turn for the better.
Aluminum prices fell significantly in the first quarter, and the specific trend can be divided into two stages: from January to February, aluminum prices were mainly affected by the domestic epidemic, and pessimistic demand expectations caused aluminum prices to fall by more than 6.45%. Subsequently, the domestic epidemic was effectively controlled, but the overseas epidemic situation was grim. Panic exposed the liquidity problem of the US dollar, the entire capital market suffered a severe impact, and aluminum prices fell more than 8.5% again.
Pay attention to the progress of the global epidemic.
The OECD warned in early March that the COVID-19 epidemic would plunge the global economy into its worst recession since the financial crisis in 2009, and urged governments and central banks to take measures to avoid a deeper recession, while lowering their forecast for global economic growth in 2020 to 2.4 per cent from 2.9 per cent previously, the lowest level since 2009.
In response to the possible economic risks of the epidemic, major central banks around the world have stepped up easing. At the beginning of March, the rupture of the OPEC+ production reduction agreement pushed international oil prices into the abyss. On March 9 alone, US oil fell by as much as 27.26%, and oil distribution fell by as much as 26.55%. Since then, oil prices have not stopped falling, and the lowest has reached less than 27 US dollars per barrel. The collapse in global oil prices is also seen as partly hedging the effects of monetary easing, adding to deflationary expectations. OCBC Bank of Singapore judged that if the price of crude oil remains at $30 a barrel for a long time, inflation in developed countries will inevitably fall into a negative range. To this end, the market once appeared the stock market, bond market, precious metal prices all fell deflation warning.
Looking forward to the second quarter, the core of the global macro market is whether the overseas epidemic can usher in an inflection point. Under the continuous fermentation of market panic, the global capital market is now close to the "darkest moment" of the impact of the epidemic. Although the overall market decline does reflect the impact of the epidemic on the economic outlook, the cathartic effect of the epidemic cannot be ignored. At present, the inflection point of the overseas epidemic has not yet emerged, and this will still be the main factor that dominates the capital market in the second quarter. Once the epidemic is effectively controlled, we have reason to believe that the "cold snap" in the capital market will be relieved.
The role of cost support appears.
Domestic bauxite supply rebounded, mitigating the risk of import disturbance. Due to the increasingly serious epidemic situation, recently, news has come out frequently that mining enterprises have announced to slow down their operations. from the point of view of the spread of the epidemic, except in Guinea, the number of people currently infected in Australia and Brazil has reached thousands, and the number of people infected in Indonesia has also reached hundreds. It is expected that it will be a high-probability event to slow down the operation of overseas bauxite mines brought about by the further spread of the epidemic.
In terms of domestic bauxite, the private mining mines in Henan have gradually resumed work, and the resumption of self-owned mines in Shanxi has improved, but the resumption of private mining has lagged behind. With the sharp fall in crude oil prices and the decline in shipping costs, some domestic alumina enterprises have increased their preference for overseas bauxite, and the overall supply of domestic bauxite was stable in the first quarter. After the current domestic epidemic is obviously under control, the self-sufficiency rate of bauxite in the second quarter is expected to increase, and to a certain extent, it will make up for the risk of slowing down the supply of overseas bauxite.
Alumina prices began to fall, alumina plant resumption of production is under way. From January to February, domestic alumina production decreased by 13% to 10.451 million tons compared with the same period last year. According to SMM statistics, as of early March, the annual production capacity of alumina reduced as a result of the epidemic reached 4.65 million tons, accounting for about 7.4%. The pressure production of alumina plants once promoted the domestic alumina price to reach a quarterly peak in mid-late March, and the decline in alumina price in the later period may be related to the resumption of production in some alumina plants. From the perspective of market price performance, the resumption of production progress of alumina plants in Henan is relatively better than that in other regions, while prices in Shandong and Guangxi have peaked relatively late.
In 2020, the new production capacity of alumina in China is close to 5 million tons, including Guangxi Huasheng New Materials Co., Ltd., Shanxi Tongde Aluminum, Shanxi Qiangjin Aluminum, Guizhou Guangzhou Aluminum, and so on. In addition, the production capacity of more than 3 million tons of alumina newly put into production in Guangxi, Guizhou and other provinces in the third and fourth quarters of last year has gradually increased, and the overall supply pattern of alumina is on the loose side. The new domestic alumina production projects in the second quarter are relatively limited, alumina resumption and pre-production capacity will contribute to alumina supply.
The accumulation rate of electrolytic aluminum slows down and the cost support begins to infiltrate. In the first quarter, about 1.1 million tons of electrolytic aluminum production capacity was put into production, such as Inner Mongolia Mengtai, Inner Mongolia Guyang, Guangyuan Zhongfu (Phase I), Baikuantian Lin, Yunnan Aluminum Heqing (Phase II), etc., but the sharp decline in aluminum prices and the strengthening of alumina prices had an impact on the operating rate of electrolytic aluminum enterprises in the first quarter. According to SMM statistics, since late March, there are about 6 domestic production reduction and maintenance enterprises (including plans), affecting the production capacity of 445000 tons per year, and with the running time of low aluminum prices, the scale of production reduction and maintenance capacity is still on the rise. Although aluminum inventory continued to increase in the first quarter, the inventory growth rate has slowed since mid-March, and the role of smelter production reduction is gradually infiltrating in the industrial chain and aluminum prices.
Because of the low financial attribute of aluminum, it is considered that the backing effect of cost support theory on aluminum price will be stronger than that of copper and other non-ferrous varieties with strong financial attributes.
Demand may warm up in the second quarter.
Real estate construction is expected to pick up, construction aluminum is expected to pick up. The real estate industry is a relatively late industry affected by the epidemic. From January to February, both the production side and the sales end were inevitably affected. The new construction area, construction area, completed area and sales area of commercial housing all recorded negative growth, and the area for sale increased significantly. Demand for aluminum for construction did not start effectively in the first quarter. At present, the domestic epidemic situation has been obviously effectively controlled, and all links continue to resume work in an orderly manner. We have reason to speculate that real estate construction projects in the second quarter will be significantly warmer than in the first quarter, and will push up the demand for building profiles.
The pressure on car inventory is expected to ease. Affected by the epidemic, the growth rate of domestic automobile production from January to February dropped sharply by 45.8% compared with the same period last year, while car inventory decreased by 14.33% compared with the end of last year, which shows that the entire automobile industry is still facing inventory pressure. At present, Guangzhou and Shenzhen have heard of new energy vehicle consumption stimulus policies, and the inventory pressure of the automobile industry is expected to be alleviated in the second quarter.
The power grid investment plan is raised, and the demand forecast is expected to be revised. Recently, State Grid said it would speed up the pace of grid investment represented by UHV. Driven by "new infrastructure", State Grid has initially arranged 450 billion yuan for grid investment in 2020, an increase of 10% compared with the plan at the beginning of the year. Yuefeng aluminum technology believes that since the market was pessimistic about the power grid construction this year, and the investment scale of UHV construction projects accounted for 40.24% of the total annual investment, it will be good for the aluminum city.
To sum up, from a fundamental point of view, the self-sufficiency rate of bauxite is expected to increase, and to some extent, it will make up for the risk of slowing down the supply of overseas bauxite, and the resumption of alumina production and pre-production capacity will contribute to the supply of alumina. In terms of terminal demand, real estate construction projects in the second quarter will significantly pick up compared with the first quarter, the inventory pressure of the automobile industry is expected to ease in the second quarter, and the demand of UHV projects on aluminum is expected to be reflected. Therefore, make an optimistic judgment on aluminum prices in the second quarter, and think that aluminum prices will usher in a round of rebound. (author: Yuefeng Aluminum Technology)