SHANGHAI, Nov. 17 (SMM) – Aluminum prices rose significantly in 2016, especially since late September, thanks to falling inventories, growing consumption, as well as higher costs from rising alumina and coal prices. Will the upward momentum carry into 2017?
“The outlook for aluminum prices is not very optimistic in 2017,” Liu Xiaolei, SMM senior aluminum analyst said at the SMM 2016 China Metals Summit (CMS) in Shanghai from Nov. 10-11.
SMM attributes the price gains in 2016 to many factors.
First, rising costs.
SMM expects full cost at domestic aluminum smelters to increase to 13,000 yuan/tonne in Q4 2016, citing rising alumina and coal prices.
Power takes the biggest share in aluminum cost. SMM survey showed 80% of aluminum smelters in China have captive power plants, and half of them buy coal from the market. Coal prices in Qinhuangdao, Datong, Yulin and Ordos shot up this year, pushing up power costs at aluminum smelters with captive power plants.
Alumina takes up 38% of aluminum cost. Alumina prices in China have gained 63.2% since January. Alumina supply is in deficit thanks to release of new aluminum capacity in late 2016. SMM sees alumina prices rising further from current 2,600-2,700 yuan/tonne to 3,000 yuan/tonne by the year’s end.
Second, low stocks.
SMM statistics showed aluminum stocks in domestic five major markets reached 2016’s high at 928,000 tonnes in March, but tumbled to record low of 241,000 tonnes in early August, although inventories rebounded slightly for some time afterwards.
However, aluminum stocks fell back slightly after September, due mainly to slow shipments from northwest China. Freight charges by trucks increased after China introduced new transport policy on September 21. Smelters thus turned to railway shipments, causing lots of aluminum ingots to be piled up at railway stations in Xinjiang, disrupting inventory growth in consumer markets.
SMM learned over 200,000 tonnes of aluminum ingots are now piling up in Xinjiang, which might take at least two months to digest.
Third, strong consumption.
The average monthly operating rate at aluminum plate/sheet, strip and foil producers increased 0.7 percentage point year-on-year in Q1-Q3. The rise was driven by growing demand for curtain walls, new energy vehicle battery shells, 3C materials, thermal power station heat dissipation materials, as well as growing aluminum foil exports.
The average monthly operating rate at aluminum extrusion producers increased 0.9 percentage point year-on-year in Q1-Q3 as faster growth in domestic property market boosted demand for construction aluminum extrusion. Demand for aluminum extrusion used in rail transport and city commercial vehicles is still expanding.
The average monthly operating rate at aluminum wire & cable producers rose 6.4 percentage points year-on-year to 61.6% in Q1-Q3, due to growing demand from UHV project construction.
Expanding secondary aluminum alloy capacity led to overcapacity. Demand from automobile sector remained strong, but demand from motorcycle producers weakened. The average monthly operating rate at secondary aluminum alloy producers decreased 1 percentage point year-on-year to 60% in Q1-Q3.
Fourth, supply deficit.
SMM Summit 2016: China Aluminum Supply to Shift into Surplus in 2017
China’s aluminum market is in supply deficit in 2016. SMM expects China’s aluminum output to grow 3.99% in 2016, 6.32 percentage points lower than in 2015. China’s actual aluminum consumption will grow 8.93% in 2016, 0.56 percentage point higher than in 2015.
What’s the outlook for aluminum prices in 2017?
End-user consumption is still growing, but the growth has slowed down. The support to aluminum prices from rising costs will not last long.
SMM expects China’s aluminum market to enter supply surplus in 2017, with output and consumption to grow 10.06% and 6.09%, respectively. Aluminum stocks will rebound rapidly since consumption growth could not keep pace with output growth, which will put pressure on aluminum prices.
SMM sees the most active SHFE aluminum moving between 11,500-14,500 yuan/tonne in 2017, with core range at 12,500-13,500 yuan/tonne and average price around 13,000 yuan. Price movement will depend mainly on costs.
Spot aluminum prices in domestic market will move between 12,000-15,000 yuan/tonne. High spot premiums in 2016 will narrow to zero or even turn into discounts in 2017.
SMM sees LME aluminum ranging $1,500-1,800/tonne next year. LME aluminum will be subject to aluminum prices in China. With Chinese aluminum industry taking up nearly 60% of global aluminum market, the weight of influences on LME aluminum from aluminum prices in China has exceeded 50%.
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