With the coming of the wet season, the logic of production reduction at the supply end is changed to the logic of production resumption, while the demand recovery is weak, and the supply and demand pattern is expected to loosen. It is expected that the aluminum price as a whole will be mainly weak, and the following will focus on the performance and inventory changes of Yunnan Hydropower during the wet season.
Since May, the supply and demand pattern is expected to ease, while the financing demand of real enterprises is weak, the optimistic expectation of domestic recovery is revised, combined with the growing concern of overseas recession. The domestic and foreign aluminum prices fell sharply under the macro and industrial weakening, among which Shanghai aluminum (18290, 130.00, 0.72%) fell to 17,760 yuan/ton at the lowest. Lun Aluminum as low as $2,200 / ton near.
The logic of production cuts fades
Recently, with the further recovery of Sichuan, Guizhou, Guangxi and other real estate, operating capacity continues to maintain an upward trend. Up to now, the completed capacity of electrolytic aluminum in China has reached 45.29 million tons (including the capacity already built and not put into operation), and the operating capacity of electrolytic aluminum has increased to 4,078.8 tons. The smelting operation rate has increased by 1.1 percentage points quarter-on-quarter to about 90 percent.
The production capacity of Yunnan region is temporarily stable, while the production reduction expectation has not been substantially implemented for the time being. Relatively considerable rainfall is forecast recently. As the wet season is approaching, the production reduction expectation in Yunnan has cooled down somewhat, and even the production resumption expectation has begun to appear. It is expected that the operational capacity of electrolytic aluminum will increase to near 41 million tons by the end of May, and the domestic electrolytic aluminum output may increase by 0.72% year-on-year to near 3.46 million tons.
The atmosphere heats up during the off-season
The demand side showed signs of weakening. Although the operating rate of leading domestic aluminum downstream processing enterprises increased by 0.9 percentage points month-on-month to 64.7% driven by the resumption of production after the holiday, most of the downstream enterprises reported insufficient new orders, among which the orders of aluminum plate and foil and building profile declined significantly. As a whole, the atmosphere of the off-season demand is heating up, and the problem of insufficient orders gradually appears. The follow-up aluminum starts or has some pullback. Due to the continuous decline in aluminum prices, downstream receiving cautious, market transactions in general, spot rising discount weaker than earlier.
In addition, according to the data of the General Administration of Customs, China exported 461,700 tons of unforged aluminum and aluminum in April 2023, and 497,400 tons in March, down 7.2% from the previous month. Cumulative exports from January to April were 1.839,600 tons, down 17.3 percent year on year, reflecting the same weakness in overseas consumption.
Inventory destocking provides support
Since confirming the turning point in mid-March, the domestic aluminum ingot inventory has started a continuous destocking trend. At present, the aluminum ingot inventory has been located in nearly 5 years of historical low, and maintain a fast pace of inventory. As of May 11, China's social stock of electrolytic aluminum ingot was 787,000 tons, down 216,000 tons from the same period in May 2022. The continuous inventory reduction is mainly due to a high ratio of aluminum to water, a decrease in ingot casting and a decline in aluminum ingot supply. However, at present, the quantity of aluminum ingots and aluminum bars out of storage has decreased significantly, and aluminum bar inventory has begun to accumulate and is higher than the historical level in the same period, which confirms the signs of weakening profile demand. Later, we should pay attention to the recovery trend of downstream orders and aluminum ingot shipment.
On the whole, the recent fundamentals are slightly weaker than in the previous period. With the coming of the wet season, the logic of production reduction at the supply end has shifted to the logic of production resumption, while the demand recovery is weak and there is little room for recovery, and the marginal pattern of supply and demand has been loosened. At the same time, the center of gravity on the cost side has shifted down due to the decline in prebaked anode, which has weakened support, but inventory destocking still has support. It is expected that the aluminum price as a whole will be mainly weak, and the following will focus on the performance and inventory changes of Yunnan Hydropower during the wet season.
(www.profiles-aluminum.com; sales@profiles-aluminum.com).
