The futures of cast aluminum alloy will be officially listed and traded on June 10th. The industry team of Wuzhan Zhongda Futures (referred to as the research team) conducted a special market research, focusing on visiting 8 benchmark enterprises in the two major recycled aluminum industrial clusters of Zhejiang and Jiangxi. The research was carried out through a combination of on-site visits and in-depth interviews. A comprehensive review was conducted on the entire industrial chain operation mechanism from the procurement of waste aluminum raw materials (covering both domestic and imported channels), melting and casting processing to terminal sales (involving the application of aluminum alloys in multiple fields such as auto parts and electronics), and key data such as the raw material inventory turnover days of enterprises, production cost structure, and spot pricing model were obtained. Provide support for market participants to seize investment opportunities and manage risks after the listing of casting aluminum alloy futures.
The downstream purchasing willingness is insufficient
According to statistics from the China Nonferrous Metals Industry Association, in 2024, China's total production capacity of cast aluminum alloys (recycled) was approximately 13 million tons, with an output of about 6.2 million tons, accounting for 26.2% of the global total output. The industrial scale ranks among the top in the world. There are a total of 129 large-scale casting aluminum alloy production enterprises in China, with an apparent consumption volume of approximately 6.73 million tons, corresponding to a market value of about 130 billion yuan. Among them, the output of the mainstream product ADC12 (an aluminum alloy grade, also known as No. 12 aluminum material) is approximately 4.65 million tons, corresponding to a market value of about 90 billion yuan. In terms of geographical distribution, China's casting aluminum alloy industry shows a distinct agglomeration effect. The production enterprises are mainly concentrated in coastal areas such as Jiangsu, Zhejiang and Guangdong, as well as regions with developed automotive and motorcycle industries or solid industrial foundations such as Sichuan-Chongqing, Anhui and Jiangxi. The consumer market is also highly concentrated. The regions with developed automotive and motorcycle industries such as East China, South China, and Sichuan-Chongqing are the main consumption areas.
At present, the capacity utilization rate of China's casting aluminum alloy industry remains at a low level (less than 50%). It is understood that the "intra-industry competition" in the prices of cast aluminum alloy finished products has led to a continuous decline in the industry's average selling price, and the theoretical profit margin of enterprises has basically remained below 100 yuan per ton.
In the short term, the aluminum alloy ingot market in May showed typical seasonal weakness, with the industry as a whole facing the dual pressure of shrinking demand and high inventory. Due to the continuous decline in terminal consumption, the purchasing willingness of downstream enterprises has significantly decreased, resulting in a 15% to 20% month-on-month decline in enterprise order volume and an increase of 3 to 5 days in the inventory turnover days of finished products compared with April. Against the backdrop of increasingly fierce market competition, in order to maintain customer relationships and accelerate capital turnover, most enterprises have adopted a price-cutting promotion strategy, which has led to a deviation in the price trend of aluminum alloy ingots from the fundamentals - the price center of electrolytic aluminum has risen by 200 yuan per ton, but the prices of mainstream grades such as ADC12 aluminum alloy ingots have instead dropped by 200 to 300 yuan per ton. This has led to a phenomenon of "following the decline but not the rise". Industry research shows that currently about 30% of casting aluminum alloy enterprises have fallen into a loss-making state. Especially for small and medium-sized manufacturers, due to difficulties in raw material procurement and insufficient orders, production cuts have successively occurred in major production areas such as Zhejiang and Guangdong.
The research team believes that the upcoming launch of the casting aluminum alloy futures will bring new pricing mechanisms and risk management tools to the market, which might change the current chaotic pricing situation in the aluminum alloy spot market. Industry insiders generally believe that the listing of casting aluminum alloy futures can enhance the efficiency of price discovery and provide effective hedging tools for industrial enterprises.
The operation status of the sample enterprises
The supply of raw materials is tight. The supply of scrap aluminium shows the characteristic of "structural tension". The research results show that the sample enterprises in Zhejiang and Jiangxi regions mainly rely on domestic waste aluminum resources (accounting for more than 85%) for production, and imported waste aluminum is only used as a supplement (producers purchase from traders at Ningbo Port depending on price changes). Some enterprises have overseas waste aluminum resources. At present, the uncertainty risk of import policies faced by enterprises remains relatively large.
According to the feedback from the sample enterprises, their current supply channels for scrap aluminum are relatively stable, with long-term cooperative suppliers. However, the overall supply of scrap aluminum in the market remains tight. There is a significant premium in the purchase of high-quality scrap aluminum (new materials and cooked aluminum), and the price is prone to rise rather than fall. The price of scrap aluminum shows the characteristics of a seller's market. The pricing mechanism for scrap aluminum is a coexistence of discount rate pricing (A00 aluminum price × discount rate) and absolute price (effluent rate).
Low capacity utilization rate. It is understood that the current capacity utilization rate of aluminum alloy factories shows a differentiated feature. The operating rate of the sample enterprises visited by the research team was between 50% and 80%, significantly higher than the industry average (about 40%). The research team believes that there is a relatively obvious phenomenon of "zombie production capacity" in the aluminum alloy industry. Most of these idle production capacities are well-equipped, with low start-up and shutdown costs. The main loss is equipment depreciation, and they can resume production at any time when production profits improve. At present, the industry has regular planned maintenance situations. The maintenance period is relatively short (2 to 3 days), and it is usually arranged for maintenance around the Spring Festival, which basically does not affect normal production.
The equipment has strong universality. The equipment in the aluminum alloy factory has strong versatility. The specifications of the melting furnaces range from 40 tons to 80 tons. The same set of equipment can be used to produce various grades of aluminum alloy. The production conversion is flexible, and various grades can be switched at will. The technical barrier is low, the initial investment is small, and it only takes a few hours to produce a batch of products. The ADC12 grade products have a fast production increase speed.
In the cost structure of aluminum alloy production in typical enterprises, raw material costs account for 90% (procurement of scrap aluminum), energy costs account for 2% (natural gas), and other raw material costs account for 8% (silicon, copper, etc.). At present, the average processing fee in the casting aluminum alloy industry remains at 800 to 1,200 yuan per ton, and the profit margin is generally less than 5%.
In the field of auto parts, the demand for customization is gradually increasing. In the industrial field, non-standard products dominate. Common products include heat sinks, motor housings, etc. Under normal circumstances, the inventory cycle of aluminum alloy factories is maintained at 14 to 21 days. In terms of pricing, enterprises in East China usually refer to the pricing of Jiangxi Baotai Group plus the premium or discount, and also take into account the data from quotation platforms such as SMM and Steel United. In terms of payment period management, the payment period for auto parts customers is generally 30 to 90 days, while that for industrial parts is shorter, usually ranging from 7 to 15 days.
In terms of the implementation of the "reverse invoicing" policy, the research team found that there was a significant divergence in the progress of the policy's implementation. In important production areas such as Jiangxi and Zhejiang, the enforcement of the policy was relatively strong, and enterprises were actively implementing it. In some regions, the policy promotion faces certain resistance. The main reasons are as follows: First, the proportion of individual business transactions exceeds 60%. Second, it is rather difficult to obtain input tax. The third point is that the cost of system transformation is relatively high; Fourth, the personnel and capital costs have increased after the policy was implemented.
Industrial enterprises have a strong willingness to participate in the futures market. According to the research results, the acceptance of the upcoming casting aluminum alloy futures by recycled aluminum enterprises is generally high, and most enterprises have indicated that they will actively participate in the futures market. Specifically, leading enterprises in the industry have a more mature application of futures tools and have begun to form professional teams to study hedging strategies, planning to lock in processing profits through the futures market. Medium-sized enterprises pay more attention to the guiding role of futures prices in the spot market, stating that "if the price is appropriate, warehouse receipts can be registered", which indicates that the relevant enterprises regard the futures market as an important sales channel. As the futures market gradually matures, it is expected that the participation of industrial enterprises will further increase, eventually forming a market pattern of positive interaction between the futures and spot markets.
The pricing system will change
It is expected that with the listing of futures and options for cast aluminum alloys, the aluminum alloy market will undergo a profound transformation in its pricing system, gradually shifting from the traditional "enterprise quotation + premium or discount" model to the "futures + basis" pricing mechanism. This transformation can not only enhance the pricing efficiency, but also provide new risk management tools for market participants. Investors need to pay close attention to the changes in regional premiums and discounts and the evolution of the term structure. Meanwhile, the listing of futures and options for cast aluminum alloys has also brought about trading opportunities for the price difference between ADC12 and primary aluminum. The research team believes that the price difference between ADC12 and primary aluminum has the characteristic of mean repulsion. When the price difference expands, investors can pay attention to the redistribution of scrap aluminum resources. When the price spread Narrows, investors should pay attention to the "lean and waste substitution effect".
Futures and options for cast aluminum alloys will provide the market with more diverse and flexible trading strategies. Market participants should make full use of these tools, conduct in-depth analysis of regional premium and discount changes, the evolution of term structures, and spread trading opportunities, and formulate more scientific and flexible trading strategies.
