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Aluminum: The 10-year bull and bear cycle for aluminum

May 7, 2024
As the most important colored varieties, in the 10-year cycle of 2013-2023, China's aluminum futures prices have shown two rounds of obvious rising cycles, and the driving factors in the two rounds of rising cycles are completely different. The main factor behind the 2015-2016 upcycle is the policy-driven profit repair of the aluminum industry, while the 2020-2021 aluminum price peak is more closely related to the supply side disturbance. Turning to the present, we think it is difficult to think that any year is more similar to this year, on the one hand, under the restrictions of relevant policies, aluminum supply has basically lost its elasticity; On the other hand, the acceleration of demand conversion and the emergence of carbon peak demand will make us face a more complex situation; Finally, the accelerated reconstruction of the world pattern makes the original experience face a certain risk of invalidation.
Demand transformation
In the past for a long time, the demand of the real estate sector has been the most important driving force for the rise in aluminum prices. Since the end of 2015, the aluminum industry has pulled out of the vortex of losses is the rapid growth of demand for real estate sector brought about by the shantytown transformation policy. However, in general, in the past 10 years, the pricing power of the real estate sector for aluminum is showing a gradually weakening trend, the collapse of demand for the real estate sector in 2022-2023 did not bring a significant decline in aluminum prices, during this period, the rise in demand for power and transportation sectors brought by the new energy industry chain has become the main pricing factor supporting aluminum prices.
Future trend
One more clear point is that we believe that the future will continue the characteristics of the changes in the various terminal plates of aluminum in the past 10 years, and the growth of new energy-related automobiles, photovoltaic, and power grids will become more and more significant in the pricing of aluminum. At the same time, the demand for aluminum exports may become the most obvious factor affecting the short-term fluctuation of aluminum prices in the future, and we may need to spend more energy to study and judge the impact of global supply chain reconstruction on our country than in the past.
Supply constraint
The supply of electrolytic aluminum industry can be simply divided into "before the supply side reform" and "after the supply side reform", and the capacity of the electrolytic aluminum industry before the supply side reform has a relatively obvious growth, especially in the two years from 2015 to 2017, the completed capacity of the electrolytic aluminum industry has increased by nearly 10 million tons, and at the same time the capacity operation rate has also fallen to 80%. After the supply-side reform and the withdrawal of some backward production capacity, the capacity operation rate of the electrolytic aluminum industry has also undergone a wave of obvious repair, and the growth rate of built production capacity has also declined significantly, and the capacity growth after the ceiling of 45 million tons is closer to 0, and the capacity operation rate has also maintained a high level.
Future trend
After determining the capacity ceiling of 45 million tons, the main increase in the supply of electrolytic aluminum in the future mainly comes from overseas supplies and the growth of recycled aluminum supply. At the same time, we need to note that carbon reduction and carbon neutrality will become the main force to promote the subsequent electrolytic aluminum supply deduction.
Since the peak of inventory in 2017, under the dual role of new energy demand growth and supply side capacity constraints, domestic electrolytic aluminum inventory has shown an extremely obvious decline and is at a low level, we believe that the subsequent electrolytic aluminum inventory will be in the current position for a long time.
Since 2013, the profits of the electrolytic aluminum industry chain have undergone two waves of obvious repair under the dual drive of supply and demand. The first profit repair appeared in 2015-2016, driven by the accelerated recovery of the real estate sector, the rapid rise in the price of electrolytic aluminum brought the first wave of industrial profits repair; The second wave of profit repair appeared in 2020-2021, in the case of overseas demand recovery after the epidemic and domestic fiscal stimulus, the profit of electrolytic aluminum appeared the second wave of repair; The third wave of profit repair appears in 2023 so far, and the main driving force behind it comes from the new aluminum demand brought about by the expansion of the new energy industry chain.
Inside-out spread
In the aluminum market, the internal and external price (or import profit) is the most important price spread structure at present. Since the supply-side reform, the aluminum market has gradually moved toward a market pattern of "internal strength and external weakness." However, in this case, the import profit in 2022 has briefly appeared a wave of obvious correction, the main reason behind it is that the Russian-Ukrainian war has made a large number of aluminum plants in Europe to stop production, which briefly reversed the internal and external pattern of the aluminum market. However, from a long-term perspective (the new energy industry chain is excessively concentrated in China, and China has few new production capacity in the future), the market will maintain a pattern of "internal strength and external weakness", but it does not rule out the disturbance of some political events (such as the recent Rusal incident).