What Fuels Big Rebound in SHFE 1709 Aluminum? SMM Reports

SHANGHAI, Jul. 10 (SMM) – SHFE 1709 aluminum recorded a growth at 5% as of 10：33 July 7, 2017 after hitting the lowest level in mid-June from January 16. What fueled the big rebound in SHFE 1709 aluminum from a 2-month consecutive decline? Is it aluminum fundamental market, or output cut news?

On the supply front, China’s aluminum output grew 20.2% YoY to 3.09 million tonnes in June with daily output at 103,000 tonnes, and totaled 18.30 million tonnes in the first half of year, up 21.7% YoY, according to SMM data. China’s annual effective aluminum capacity was 37.61 million tonnes in June, up 6.32 million tonnes from the same period of last year.

However, aluminum inventory saw no significant decline, which even rallied to 1.22 million tonnes on July 6, despite of consumption peak season.

From the table above, China’s aluminum output and overall capacity do not reduce in face of supply-side structural reform but increase notably in 2017, depressing aluminum price.

On the inventory front, aluminum ingot inventory in Gongyi, Shanghai, Wuxi, Nanhai and Hangzhou grows constantly since the beginning of 2017, which recorded the highest level on May 5 in recent years, according to SMM data. Aluminum inventory didn’t decrease, but increased to 1.22 million tonnes again on July 6, despite of peak season. The table above tells that aluminum inventory, going against seasonal factor, is at high level in recent years.

On the consumption front, spot aluminum does not trace SHFE 1709 aluminum up, and discounts widen constantly from mid-June.

Given all that, fundamentals, including output increase, high inventory and weak spot aluminum price, are not the fuels for aluminum price hike. So, what pushes up SHFE 1709 aluminum?

Henan Aluminum Capacity Elimination to Be Potentially Offset by New Capacity, SMM Warns

SMM attributes output cut news from some regions to the price surge, which raises market supply-side concerns.

Output cut news has been released continuously since mid-June.

On June 20, Shandong Weiqiao Pioneering Group announced to cut 250,000 tonnes of aluminum within 10 days.

On July 1, East Hope Group Nonferrous Metals suspended 33 sets of electrolytic cells, and follow-up production halts are unclear yet.

On July 5, Henan called 3 local aluminum smelters to eliminate aluminum capacity for a long time, with capacity totaling at 500,000 tonnes.  

In late June, China’s Ministry of Industry & Information Technology held a meeting with 10 enterprises, including Chalco and China’s State Power Investment Corp., to give output reduction targets based on supply-side structural reform. China’s local governments went to Beijing to report results of capacity cut on July 6, attracting market participants’ close attention.

As such, news from output cut and its policies are the main factors behind this round of rebound in SHFE 1709 aluminum.

China Aluminum Output Growth to Slow Down YoY in July, SMM Reports

However, market participants have ignored new aluminum capacities, SMM notes.

As of June 20, some aluminum smelters, including Gansu Dongxing Aluminum, Sichuan Bomei Aluminum, Qujing Aluminum, Guangxi Investment Group Yinhai Aluminum and Ningxia Qingxiatong Aluminum, have resumed operation, increasing more than 500,000 tonnes of aluminum capacity.

On June 27, Yidian Holding Group announced to expand 500,000-tpy of aluminum capacity after Henan’s government eliminated equivalent capacities from small and medium aluminum smelters.

Inner Mongolia Huayun New Materials, keeping entering 780,000-tpy aluminum project into operation, has launched 240 sets of electrolytic cells as of July 3, leading to capacity at 300,000 tonnes. The rest of electrolytic cells will start production in mid September.

To sum up, news of output cut and its policies shore up SHFE 1709 aluminum, but fundamentals and spot market still weigh down aluminum market. SHFE 1709 aluminum will swing widely in a short term, SMM expects. 

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