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Shanghai aluminum short long short trend

August 4, 2023
On the one hand, the recovery of macro sentiment at home and abroad gives aluminum prices a certain short-term support; But on the other hand, the supply side has increased rapidly, while the demand side has not substantially improved, and fundamental pressure remains.
Since late July, the center of gravity of Shanghai aluminum prices has continued to rise, and the current main contract 2309 broke through the oscillation range of the previous two months along the upper line of 18,200 yuan/ton, and yesterday it once rose to 18,700 yuan/ton. Recently, the domestic macro level of good frequency, last Monday the Political Bureau of the Central Committee meeting set the direction of the second half of the economic response to market policy expectations, and then the policy began to gradually implement the landing. Looking forward to the future market, whether the fundamentals can cooperate with the macro level to drive the trend of aluminum prices has become the focus of market attention.
Global macro sentiment is warming
Overseas, macro sentiment improved quarter-on-quarter. Last week, the United States and Europe raised interest rates, the rate increase is expected within the 25BP, the press conference after the interest rate meeting, the United States and Europe Central Bank said neutral, the Federal Reserve Chairman Powell said that it has not decided whether to continue to raise interest rates, the follow-up is still to observe the data. Lagarde, president of the European Central Bank, said that he was open to suspending interest rate hikes in September and after, the market interpretation is relatively dovish, the current federal funds rate futures pricing of CME Group shows that the probability of the Federal Reserve no longer raising interest rates within the year is more than 70%, and some overseas economists expressed relatively optimistic about the follow-up European Central Bank to suspend interest rate hikes.
Recently, overseas economic data have also shown some improvement. Data showed that the US real GDP growth rate in the second quarter was 2.4% (previous value was 2%, expected to be 1.8%), Markit manufacturing PMI in July was 49 (previous value was 46.3, expected to be 46.4), and durable goods orders in June was 4.7% (previous value was 2%, expected to be 1%). Personal spending was 0.5% m/m in June (0.2% vs. 0.4% exp.), higher than expected and previous data showed that US economic activity remained resilient in the high interest rate environment, raising market expectations of a "soft landing" for the US economy.
On the domestic front, the meeting of the Political Bureau of the Central Committee on July 24 pointed out that we should strengthen counter-cyclical adjustment and policy reserves; Effectively prevent and defuse risks in key areas, timely adjust and optimize real estate policies; We will effectively guard against and defuse local debt risks, and formulate and implement a package plan for reducing local debt. The meeting covered more than the market expected, the statement was more positive than expected, and the market sentiment was significantly boosted. After that, many departments voiced and followed up the implementation of specific policies, on July 31, the National Development and Reform Commission issued the "Measures to restore and expand consumption", requiring that the recovery and expansion of consumption be given priority, optimize employment, income distribution and the promotion mechanism of the virtuous cycle of the whole chain of consumption, enhance consumption capacity, improve consumption conditions, innovate consumption scenarios, and fully tap the advantages of the super-large market. With the gradual landing of specific policies and measures, the market continues to rise in optimism about the domestic economy, and the stock market atmosphere is gradually warming.
Supply is rising rapidly
Different from the favorable macro level, the fundamentals of electrolytic aluminum have continued to be weak since May, and the degree of weakness has been strengthened recently. The reason is that the supply side continues to rise, the smelting profit of domestic electrolytic aluminum enterprises is running at a high level in the first half of the year, and the enterprises are strongly willing to put into production and resume production. From April to May, Sichuan and Guizhou continued to promote the resumption of production, and Inner Mongolia also put in some new capacity, and the domestic electrolytic aluminum operating capacity continued to increase slightly. At the end of June, due to the advent of the rainy season, Yunnan hydropower recovery is good, Yunnan Province released 4.195 million kilowatt load power management for the electrolytic aluminum industry in the early production of 1.8 million tons of capacity started to resume production, under the support of high profits, the province's electrolytic aluminum enterprises operating capacity rapidly increased. According to the feedback of the enterprise, some production capacity has been initially restored to full production, and the remaining production capacity will be restored in nearly half a month. At present, the operating capacity of domestic electrolytic aluminum enterprises has risen to 42.568 million tons, which is at a historical absolute high, and the upward production capacity has driven a significant increase in the supply of electrolytic aluminum. On the demand side, it has continued to weaken slightly since May, and was slightly improved last week due to the boost of macro sentiment, but it is still the traditional off-season, and it takes time for the policy to be transmitted to demand, and it is expected that short-term downstream demand will continue to pick up.
Looking forward to the future market, in the short term, the overseas macro sentiment has improved from the previous quarter, and the optimistic sentiment has continued to rise with the frequency of favorable policies in China, which will support aluminum prices. However, in the long run, due to the rapid resumption of production in Yunnan, the fundamentals are still under certain pressure under the background of a substantial rise in supply. Subsequently, with the gradual completion of macro pricing, the increment of electrolytic aluminum production capacity will be transformed into an increase in production, and the inflection point of domestic aluminum ingot inventory appears, and it is recommended to pay attention to the high short opportunity of Shanghai aluminum.
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