Power Rationing Policy in Yunnan to Induce an Inflection Point in Aluminium Inventory

The power rationing in Yunnan, which has attracted much market attention, has finally been implemented. The production reduction of aluminium may reach about 670,000-800,000 mt. It is learned after the Chinese New Year, aluminium prices have been trending lower amid the game between longs and shorts, while the aluminium social inventory also exceeded 1.2 million mt as the demand did not pick up as expected. The new around of production reduction on aluminium in Yunnan may promote aluminium ingot inventory to drop.

SMM latest data shows that as of last Thursday February 16, the aluminium ingot social inventories across China's eight major markets totalled 121,600 mt, up 17,700 mt from a week earlier.

With production resumption of terminal enterprises after the holiday, the proportion of direct shipments from smelters to processing plants has increased, which is expected to drive a rapid decline in inflows of aluminium ingots to the warehouses.

It should also be noted that aluminium costs have dropped following the decline of prebaked anode prices and coal prices, according to SMM analyst. 

Now that the production cuts are implemented in Yunnan, the aluminium inventory will shed rapidly to maintain a tight supply-demand balance if the downstream consumption recovers as soon as possible. Then the aluminium prices will enjoy great momentum.

SMM also estimates that the domestic aluminium supply in 2023 will still climb by 3.5% on the year, and the imports will reach about 350,000 mt. In this case, the aluminium inventory is likely to buid up by the end of this year, and the aluminium prices will retreat as a whole