Industry status
Aluminum prices rebounded this week, and domestic inventories continued to fall. The aluminum price closed at 19,920 yuan/ton this week, 0.45% on a week-on-week basis. According to our estimates, the average profit of the electrolytic aluminum industry was 4172 yuan/ton, -0.25% on a week-on-week basis. Weekly ratios of domestic stocks in the social treasury, Shanghai Futures Exchange, and LME were -3.43%, -2.60%, and -2.50%.
Supply side: According to statistics from Aladdin and SMM&IAI, in June, China’s electrolytic aluminum had a built-up capacity of 42.801 million tons and an in-production capacity of 39.586 million tons, with an operating rate of 92.49%; in July, China’s electrolytic aluminum production was 3.279 million tons, the same as +5.06%, The output of overseas electrolytic aluminum was 2.304 million tons in June, the same as +1.05%.
Demand side: According to SMM statistics, the operating rate of leading aluminum processing enterprises dropped by 0.7ppt this week, mainly due to the limited production caused by epidemic control and power curtailment. In June, the operating rate of China’s aluminum profile, aluminum rod wire, aluminum plate, strip and foil, and recycled aluminum alloy enterprises was -1.98ppt, -0.5ppt, +8.95ppt, +8.73ppt year-on-year, and -0.30ppt, +0.48ppt, -0.27ppt, and -0.27ppt. -2.83ppt.
Cost side: the market prices of alumina, thermal coal, and pre-baked anodes this week are 2601 yuan/ton (weekly +1.80%), 1082.5 yuan/ton (weekly -0.46%), 4761.25 yuan/ton (weekly +0.91%) .
Comment
Epidemic control upgrades superimposed power rationing, and demand side disturbances increased. According to SMM and my nonferrous network, due to the epidemic control policies in Henan, Jiangsu, Zhejiang and other places, the inter-city and inter-provincial transportation of aluminum ingots was blocked, and the disturbance at the raw material side increased. At the same time, the power rationing in Henan caused aluminum processing plants to reduce production and the operating rate was small decline. We expect that the Henan aluminum industry will still have unstable factors in the future, such as the recovery after heavy rains, the control of the epidemic, and the peak power rationing, which may have a greater impact on the operating rate.
Power tensions continue to be disturbed, and the supply of electrolytic aluminum continues to be suppressed. According to SMM and my non-ferrous network, Mongolia implemented dual energy consumption control during the previous period. Recently, due to the peak power consumption in summer, the power load of China Southern Power Grid has continued to be tight. 40/15/100,000 tons of production capacity, a total of 1.85 million tons accounting for 4.6% of the total production capacity; in addition, it may delay the production capacity of 90/80/10/350,000 tons to be put into operation, with a total of 2.15 million tons accounting for 5.4% of the total production capacity. Form a strong support.
There are many disturbances on both sides of supply and demand, which will not change the fundamental healthy pattern. We believe that since the supply reform in 2017, the domestic electrolytic aluminum production capacity utilization rate has been irreversibly increased from 85% at the end of 2016 to about 93%, thus laying the foundation for the overall situation of high aluminum prices. The implementation of the “start before break” policy will help to a certain extent alleviate the shortage of capacity caused by power curtailment, but considering that traditional thermal power is still tight under the background of carbon neutrality, the peak season of 2021Q4 is approaching, and Russia will begin to increase export tariffs in August And other factors, the tightening trend of aluminum supply and demand may be difficult to reverse. In addition, if coal prices fall, thermal power costs will fall, and profit per ton of aluminum is expected to increase significantly. We continue to be optimistic about the value of electrolytic aluminum allocation in the context of supply reform + carbon neutrality.
Risk
The global economic recovery is lower than expected; new electrolytic aluminum production capacity exceeds expectations; the Federal Reserve’s monetary tightening ahead of schedule.
A review of the recent aluminum market: electricity curtailment and epidemic disturbances will not change the fundamentals and health
This week, the price of aluminum ingots from the Yangtze River was reported at 19,920 yuan/ton, 0.45% on a week-on-week basis. According to our calculations, the average profit of the electrolytic aluminum industry is 4172 yuan/ton, -0.25% on a week-on-week basis.
In terms of inventory, the domestic social inventory of aluminum ingots this week was 732,000 tons, which was -26,000 tons compared with last week and was -3.43% week-on-week. The Shanghai Futures Exchange and LME stocks were 249,600 and 1,353,100 tons respectively, compared with last week’s -0.66 and -34,700 tons, and the week-on-week ratio was -2.60% and -2.50%.
Chart 1: Aluminum prices and changes in the average profit of the electrolytic aluminum industry
Chart 2: Social inventory of aluminum ingots (10,000 tons)
Chart 3: Shanghai Futures Exchange aluminum ingot inventory
Chart 4: LME inventory
The Politburo of the CPC Central Committee convened a meeting to promote carbon neutrality first and then break down
We believe that at the end of July, the Politburo meeting of the CPC Central Committee will again propose the work of ensuring the supply of bulk commodities and stabilizing prices, which shows the determination of the Party Central Committee. We expect the government to further deploy relevant landing policies in the future. In the early stage, the State Council repeatedly named large batches on the one hand to cool the market sentiment and ensure supply to support the shortage of spot goods. On the other hand, it is to crack down on hoarding and release market stocks, which is conducive to the healthy development of the market. At the practical level, the National Development and Reform Commission held a meeting in June to deploy policies, dispatched a joint working group to investigate, and used the means of dumping reserves to initiate policy regulation to maintain supply and stabilize prices.
We believe that since the supply reform in 2017, the domestic electrolytic aluminum production capacity utilization rate has been irreversibly increased from 85% at the end of 2016 to about 93%, thus laying the foundation for the overall situation of high aluminum prices. Even if the implementation of the “first and then break” policy will help to a certain extent alleviate the capacity shortage caused by power curtailment, considering that traditional thermal power is still tight under the background of carbon neutrality, the peak season of 2021Q4 is coming and Russia will start to increase exports in early August. Factors such as tariffs make it difficult to reverse the tightening trend of aluminum supply and demand. In addition, if coal prices fall, thermal power costs will decline, and profit per ton of aluminum is expected to increase. We continue to be optimistic about the value of electrolytic aluminum allocation in the context of supply reform + carbon neutrality
The second batch of dumping and storage landed, the total amount is controllable, and the short-term continued to hedge the production of discontinued production in Yunnan, Inner Mongolia, etc.
According to the announcement of the State Reserve Bureau on July 21, the second batch of national reserve aluminum for 2021 will be launched in the near future. The second batch will have a total sales of 90,000 tons. The public bidding will be held on July 29. The bidder is engaged in aluminum Processing and manufacturing related enterprises.
According to an announcement by the State Reserve Bureau on June 22, the first batch of aluminum national reserves for 2021 will be released in the near future. It is a related enterprise engaged in aluminum processing and manufacturing.
According to an announcement by the State Reserve Bureau on June 18, in accordance with the deployment of the State Council’s executive meeting on ensuring the supply and price stability of bulk commodities, the State Bureau of Grain and Material Reserves will release copper, aluminum, zinc and other national reserves in batches in the near future. The launch is for non-ferrous metal processing and manufacturing enterprises, and an open bid is implemented.
We believe that the pace and scale of the dumping of reserves are relatively controllable. Based on the current healthy aluminum market, it will have a relatively small impact on supply and demand, which will help smooth market supply and demand, but will not change the trend of aluminum prices.
We believe that, first, the overall dumped reserves are limited, which can hedge against the lack of production shutdowns in Yunnan and Inner Mongolia, and has a small impact on supply and demand. According to Aladdin’s statistics, the State Reserve Bureau has purchased and stored about 990,000 tons since 2008, and dumped 213,500 tons during the period. The remaining state reserves of aluminum ingots amounted to 776,500 tons. According to the latest dumping scale of the State Reserve Bureau, at the end of each natural month According to calculations, the annual investment scale is about 350,000 tons. In addition, if the current monthly de-stocking rate is used, the increased delivery volume can only partially restrain the de-stocking rate.
Second, the target of dumping reserves is downstream end users, not directly on the market. Due to the targeted audience, aluminum ingots are directly transferred to downstream inventory, reducing direct purchases in the downstream spot market, which can effectively repair the current basis, which is conducive to stabilizing aluminum prices and does not cause major price fluctuations.
Third, it is expected to slow down the import of unwrought aluminum, which is conducive to the stability of overseas aluminum prices. We believe that the dumping of reserves will ease the mismatch of domestic supply and demand on the one hand, and on the other hand it is expected to reduce overseas imports, which will also stabilize overseas aluminum prices and help ease overseas supply and demand.
Affected by the peak electricity consumption in summer, the electrolytic aluminum plants in Yunnan, Guangxi and Guizhou further reduced production
On July 14th, according to my nonferrous website, Yunnan electrolytic aluminum enterprises once again received a request to reduce load, which caused the previous production capacity reduction plan due to power cuts to be put on hold again.
On June 17, the National Development and Reform Commission held a press conference. The spokesperson said that after the power supply shortage in May, the National Development and Reform Commission took swift action to guide grid companies and Guangdong, Yunnan and other regions to actively take measures to protect the southern region. The power operation is generally stable and orderly. Since June, the tight supply and demand situation in the southern region has improved greatly. With the increase in hydropower output during the flood season, the power shortage situation in the southern region is expected to be further eased.
On May 21, according to SMM news, Yunnan’s electrolytic aluminum enterprises have limited production by more than 30% due to drought caused by electricity supply problems in the province.
On May 18, according to Aladdin’s news, the Yunnan Electric Power Dispatching and Control Center carried out a 10% test and verification of the load shift of Yunnan electrolytic aluminum users in 2021. The electrolytic aluminum users in the province (involving Kunming, Qujing, Honghe, Dali, Zhaotong, Wenshan and other 6 power supply bureaus must carry out this test. In principle, the peak load of a single user is not less than 10% of the normal power load, and the peak load time is not less than 3 hours.
We believe that first, the power shortage caused the shutdown of 830,000 tons of electrolytic aluminum production capacity in Yunnan, accounting for 2.1% of the national operating capacity. Although the flood season is coming, the impact on the supply side may continue to increase.
According to statistics from Baichuan, as of July, the power shortage has caused about 830,000 tons of electrolytic aluminum in Yunnan to stop production, which is slightly lower than the previous 30% reduction in production. The tight supply and demand, the marginal impact of the current production restriction cannot be underestimated. This is also one of the main reasons for the implementation of the domestic reserve dumping policy. The trough achieved a reduction in production, which will also lead to a longer restart time.
Second, the late flood season in Yunnan has caused short-term power shortages. We believe that new production capacity may be delayed and there is still a risk of mismatch between supply and demand.
In the early stage, due to the late flood season, the hydropower transmission capacity was insufficient, which led to emergency peak-shifting power rationing by power-consuming enterprises in various prefectures in Yunnan Province. However, considering the first is the gradual increase in industrial power production capacity in Yunnan, and the second is the peak season for power demand in the summer, and the power shortage is still there, we believe that the short-term planned new production capacity may be further delayed, causing the mismatch of supply and demand to further intensify.
Double control of energy consumption and power tension disturb the supply of electrolytic aluminum in Inner Mongolia
On July 9th, according to my non-ferrous network, due to the shortage of power supply, several electrolytic aluminum enterprises in western Mengxi were requested to reduce the power load during the peak period of power consumption in the evening. According to statistics from my non-ferrous network, there are currently 6 electrolytic aluminum production enterprises in West Inner Mongolia, involving a production capacity of about 3.45 million tons/year. According to the type of electricity consumption of each enterprise, the total production capacity using grid electricity is 1.05 million tons/year. In 2015, it accounted for 30% of the total production capacity in West Inner Mongolia and 2.4% of the country’s total production capacity.
On March 12, according to China Ferroalloy Network, Baotou Development and Reform Commission’s “Red Warning Response Measures for Dual Control of Energy Consumption in Baotou (First Quarter)” document, Baotou area needs to implement production restriction measures from now to March 31. Among them, Baotou Aluminum Company and Oriental Hope Aluminum Company both need to reduce electricity consumption by 150 million kilowatt-hours or energy consumption of 40,000 tons of standard coal. Based on a total of 300 million kilowatt-hours, the corresponding output of electrolytic aluminum is about 22,200 tons.
On March 9, the Inner Mongolia Autonomous Region Development and Reform Commission, the Department of Industry and Information Technology, and the Energy Bureau issued a notice on “Several Safeguard Measures for Ensuring Completion of the “14th Five-Year” Energy Consumption Dual Control Target Task”, which determined the region’s energy dual control target in 2021 The energy consumption per unit of GDP is reduced by 3%, the increase in energy consumption is controlled at about 5 million tons of standard coal, the total energy consumption growth rate is controlled at about 1.9%, and the unit industrial added value is reduced by more than 4%; for high energy consumption such as electrolytic aluminum The industry will no longer approve new production capacity from 2021.
On February 25, SMM reported that due to the overall energy consumption of Inner Mongolia, a large thermal power province, that did not meet the standard in 2019, the initial plans of Jinlian, Huomei and other electrolytic aluminum plants in eastern Inner Mongolia will reduce production in the nature of maintenance, affecting the annual production capacity of the entire eastern Inner Mongolia area. Or at the level of about 100,000 tons.
On February 7, the National Development and Reform Commission announced the assessment results of the “dual control” of the total energy consumption and intensity of each province in 2019. Inner Mongolia was the only province in the country that failed to complete the assessment results and was criticized by the notification.
We believe that first, the issuance of the Inner Mongolia dual control document means that the measures formulated by the Inner Mongolia Autonomous Region to ensure the completion of the “14th Five-Year Plan” energy dual control target have entered the implementation stage. Aluminum production capacity will even be reduced, and the effectiveness of carbon neutral policies will begin to appear in Inner Mongolia. At the same time, due to power shortages, Inner Mongolia continued to restrict the production of electrolytic aluminum production capacity and resume production. As of July, a total of 387,000 tons of electrolytic aluminum production capacity had been shut down.
The Russian government imposes metal export tariffs in response to inflation, which is expected to raise the cost and price center of global electrolytic aluminum
According to SMM news, in response to the sharp increase in raw material prices, Russian Prime Minister Mikhail Mishustin signed a decree to impose a levy on exports of ferrous metals and major base metals from August 1 to December 31, 2021. tariff. The new tariff system is based on 15%. The specific export tariff for aluminum products is US$254 per ton. The tariffs are imposed to cool down the domestic metal prices in Russia.
Russia is the world’s second largest producer of primary aluminum (6%), and the world’s largest exporter of aluminum ingots (17%). The imposition of aluminum export tariffs this time has a greater impact on the global primary aluminum supply structure. We believe that in the short term, due to the closure of China’s domestic aluminum ingot import window, the impact on the domestic aluminum market supply will be limited, but it will have a greater supply tightening impact on overseas supply, which is expected to lift the overseas electrolytic aluminum price center. In the medium term, we believe that if the price of aluminum is strong on the outside and weak on the inside, it will stimulate the opening of the domestic primary aluminum export window, thereby boosting domestic demand and driving the domestic price center upward.
First, Russia is the world’s second largest producer of primary aluminum, the world’s largest exporter of primary aluminum and the fourth largest exporter of aluminum alloys. The tariff increase has a greater impact on the global primary aluminum supply pattern. Russia’s electrolytic aluminum production mainly comes from Rusal. In 2020, Russia’s electrolytic aluminum production will be 3.65 million tons, accounting for 5.6% of the world’s total output. It is the largest primary aluminum producer outside of China. Russia’s exports of primary aluminum and aluminum alloys are relatively large. In 2019, the exports of primary aluminum and aluminum alloys were 1.9 million tons and 840,000 tons respectively, accounting for 17.4% and 6.9% of the total global trade volume. Among them, the export volume of primary aluminum accounts for 52% of the total domestic output. We believe that the tariff increase will restrain the export of aluminum ingots and increase the shortage of overseas electrolytic aluminum supply.
Chart 5: Russia is the world’s second largest producer of primary aluminum
Chart 6: Russia is the world’s largest primary aluminum trading country
Figure 7: Russia is the world’s fourth largest aluminum alloy trading country
Second, the short-term domestic supply and demand tensions are eased, the primary aluminum import window is closed, and the impact space is limited. According to customs data, my country’s electrolytic aluminum imports have been relatively small in the past ten years, remaining at the level of 100,000 tons. In 2020, due to the impact of the new crown epidemic, the import volume once increased sharply. The import volume of primary aluminum and aluminum alloy reached 1.064 million tons and 1.233 million tons respectively. , Both set new highs in the past 11 years. Among them, the imports of primary aluminum and aluminum alloy from Russia were 363,000 and 51 thousand tons, respectively, accounting for 34% and 4%. From January to May of 2021, affected by domestic energy consumption and power shortage, the import volume of primary aluminum and aluminum alloy will continue to maintain a high level. 14.7 and 7,600 tons, accounting for 25% and 1.9%. According to Antaike data, China’s primary aluminum imports lost an average of 288 yuan/ton in June, and the export window continues to be closed. Therefore, Russia’s additional tariffs have little impact on the country. We believe that the subsequent shutdown of production capacity in Yunnan due to power shortages , The launch of new projects and the dumping of reserves by the State Reserve will ease supply tensions and import demand will tend to decline.
Third, the levy of tariffs is expected to drive the shortage of overseas primary aluminum supply, which will force Lun Aluminum to strengthen and open up my country’s primary aluminum export window. In addition to China, Japan, the United States and European countries and regions are the main destinations for Russian primary aluminum exports. We believe that the reduction in Russian exports will lead to a tightening of foreign primary aluminum market supply, and the rise in aluminum spot prices will eventually force my country’s primary aluminum export window Open up, promote a large number of domestic primary aluminum exports, tighten domestic supply and demand, and drive up the global primary aluminum cost.
Chart 8: Russia is China’s largest primary aluminum importer
Chart 9: Russia is China’s eighth largest aluminum alloy importer
Figure 10: Russia accounted for 25% of China’s imported aluminum ingots from January to May 2021
Chart 11: China’s aluminum ingot import window has been closed since the end of May
Supply and demand have steadily tightened, and the mid-to-long-term aluminum price center is expected to gradually rise
Domestic electrolytic aluminum production continued to grow year-on-year
According to Aladdin’s statistics, in June 2021, China’s electrolytic aluminum has built a production capacity of 42.801 million tons and an in-production capacity of 39.586 million tons, with an operating rate of 92.49%. The operating rate of electrolytic aluminum has maintained a slow upward trend since 2018 and is at a relatively high level in the past ten years.
In terms of output, according to SMM statistics, China’s electrolytic aluminum production in July 2021 was 3.279 million tons, +5.06% year-on-year; according to International Aluminum Association (IAI) statistics, overseas electrolytic aluminum production in June 2021 was 2.304 million tons, +1.05% year-on-year.
Chart 12: China’s total electrolytic aluminum production capacity and operating capacity
Figure 13: Changes in China’s electrolytic aluminum production (10,000 tons)
Chart 14: Changes in overseas electrolytic aluminum production (10,000 tons)
China’s electrolytic aluminum production capacity is gradually approaching the compliance red line
According to Baichuan Information, as of August 5, 2021, China’s newly built electrolytic aluminum production capacity has been put into production in 2021, with 585,000 tons. It is expected that 1.42 million tons will be put into operation during the year. Gansu, Shanxi, Qinghai and other places will resume production of 745,000 tons of production capacity in 2021; under the influence of the carbon neutral policy, many electrolytic aluminum plants in Inner Mongolia plan to reduce production due to carbon emissions.
China’s aluminum and primary aluminum imports continue to maintain growth
According to the data of the General Administration of Customs, the import volume of unforged aluminum and aluminum materials in June 2021 was 294,100 tons, which was +1.83% year-on-year and +30.44% month-on-month; the total amount was 1,462,800 tons, which was +79.2% year-on-year, mainly affected by aluminum prices. The impact of the strong external weak situation.
In terms of primary aluminum, the import of electrolytic aluminum is subject to a 13% value-added tax. Primary aluminum imports account for a relatively small proportion of China’s electrolytic aluminum supply. However, since 2020, due to the strength and weakness of aluminum prices, the number of imports in June 2021 will be 15.78. 10,000 tons, with a total of 740,000 tons imported from January to June.
Figure 18: Profit and loss of spot imports of aluminum ingots in China
Figure 19: Shanghai-London ratio
Figure 20: China’s unforged aluminum and aluminum imports
Figure 21: China’s primary aluminum imports
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Post time: Aug-10-2021