China's August Aluminum Product Price Analysis

Aluminum price has opened a rising channel since the end of May, it has maintained the pace of shock strong and it’s unchanged. After entering August, the performance is even brighter. On 25^th August, Shanghai Futures Aluminum (20,675, 150.00, 0.73%) main contract intraday touched 20,705 yuan/ton, refreshing the aluminum price high in nearly 13 years, and it has only been about a week since the last breakthrough. The LME aluminum recently also shock higher, but not as strong as Shanghai Futures aluminum, Shanghai/London shock over 7.8, import losses recently reduced to 100 yuan/ton, the import window is expected to open for the domestic traders.

Aluminum prices have been rising recently, with fundamentals contributing the main driving force. July and August were the off-season for the aluminum market. The demand of several end consumer markets, such as real estate and automobiles, fell, and the operating rate of downstream aluminum processing enterprises declined seasonally. However, the change of inventory data sends a signal that the off season is not weak. According to the survey statistics, until the beginning of August, the social inventory of domestic electrolytic aluminum has been in the state of inventory depletion, and the social inventory has dropped to the lowest 724,000 tons. Later, due to the concentrated arrival of goods in Gongyi city area, the social inventory has been slightly exhausted, but the absolute value is still at a historical low. Behind the decline in inventories is a gradual tightening of supply. From July to August, supply end is frequency disturbed, and "power limit" becomes the key word in electrolytic aluminum industry. As early as May, Yunnan province has the similar news of limited power and reduce production ability. By the end of July, Yunnan province had ordered local aluminum smelters to cut production from 25 per cent to 30 per cent as power shortages worsened. In August, Guangxi province aluminum companies were forced to join the "package" of production cuts. Guangxi Southern Power Grid Company required aluminum smelters in Guangxi province to further reduce power load by 30%. Power rationing measures in southwest China have dealt a huge blow to electrolytic aluminum production. According to statistics of Baichuan Yingfu, in 2021, only Yunnan and Guangxi have reduced production by about 1.5 million tons, and a total of 2.36 million tons of annual production capacity has been reduced. In addition, according to statistics, electrolytic aluminum output in July was about 3.26 million tons (0.91% lower than the previous month), with net import of about 60,000 tons and consumption of about 3.5 million tons, resulting in a shortfall of about 180,000 tons. Production capacity is limited , the supply gap is the most important element of the rising high price of aluminum.

Under the background of "dual carbon", it is difficult to restore production capacity and supply may be further limited. Reviewing the recent changes in aluminum prices, the press conference held by the National Development and Reform Commission on August 17 played a key role in curbing the implementation of "two high energy consumption" and "double control" of energy consumption. On that day, aluminum prices surged to 20,570 yuan/ton, breaking the 13-year record high. At the same time, the conference named Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi and Jiangsu as provinces (regions) whose energy intensity increased rather than decreased year on year. At present, China's electrolytic aluminum production capacity is mainly concentrated in Shandong, Xinjiang, Inner Mongolia, Yunnan, the four provinces contribute about 50% of the national electrolytic aluminum production capacity, followed by Qinghai, Guangxi, Henan, Ningxia and other provinces. Among them, Inner Mongolia has already reduced production by about 420,000 tons due to the "double control" problem of energy consumption at the beginning of the year. Although it was not named this time, Tongliao city in the province was recently summoned by the government of the autonomous region for talks due to the failure of the double control of energy consumption, and there is a risk of further reduction of capacity. The problem of power rationing in Yunnan has not been improved, and the plan of resuming production has been shelved, and the energy consumption is not up to standard. If Xinjiang region strengthens energy consumption "double control" in the future, because of the huge energy consumption of aluminum electrolysis, electrolytic aluminum production enterprises are likely to be affected. In addition, Guangxi aluminum production limit has not been loosened, Qinghai aluminum enterprises have received orderly electricity notice, Ningxia high energy consumption enterprises also spread the news. It can be found that at present several major domestic electrolytic aluminum production provinces, except Shandong, almost all "lost", the future supply may be limited again. With the arrival of the "gold nine silver ten" peak season, demand is expected to continue to strengthen, if the supply side can not keep up with the pace of increased demand, domestic supply and demand mismatch may further expand, so it is predicted that aluminum prices in the second half of the year is easy to rise rather higher than the fall.

Beware of bad policy news and market sentiment has changed. Domestically, a major risk for aluminum prices in the near future lies in the unexpected increase in the volume of state reserves. Although the National Food and Strategic Reserves Administration has dumped 50,000 tons of aluminum ingots and 90,000 tons of aluminum ingots twice this year, a total of 140,000 tons of aluminum ingots reached downstream processing enterprises. Although the national reserve and disposal reserve provide a certain supplement to the supply, the overall quantity is not enough to relieve the supply pressure, and is not enough to change the fundamentals of aluminum supply situation. According to Jia Mingxing, vice president and secretary general of China Nonferrous Metals Association, the amount of national reserves sold at one time is less than that of the industry in a day, so the purpose of selling stocks is mainly to guide the direction of the market. However, the country's top leadership is determined to keep supply stable. The head of the National Food and Strategic Reserves Administration said in a recent interview that the country will continue to release copper, aluminum and zinc reserves in the next step. If there is more than expected increase in discard reserves volume, aluminum prices will be hit.