[institutional point of view] Shanghai aluminum demand recovery price center will rise in the second quarter-Shanghai Metals Market

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[institutional point of view] Shanghai aluminum demand recovery price center will rise in the second quarter

Translation 09:56:28AM May 14, 2019 Source:Huizhou merchant futures
The content below was translated by Tencent automatically for reference.

SMM News: since 2019, the main contract of Shanghai Aluminum Futures has rebounded since January 15, when it hit the bottom of the cost of 13230 points, closing at 14240 points as of April 25, an increase of 7.63 per cent. From the end of 2018 to the beginning of 2019, the electrolytic aluminum enterprises concentrated on the elimination and transfer of production capacity, but under the suppression of low profit, the production speed of new projects was slow. Since 2019, the supply side of aluminum has been running smoothly, consumption has maintained a year-on-year upward trend, social inventory has continued, aluminum prices may remain strong and volatile, and upward space still needs to track the recovery of traditional major consumer industries.

From the inside and outside situation, the price ratio of Shanghai aluminum and LME aluminum has been maintained around 1.2 in recent years, and the trend of LME aluminum is also highly consistent with that of Shanghai aluminum. Moreover, the domestic aluminum price has always been stronger than that of LME aluminum, and there is a relatively stable price difference between them, but because the price comparison is more stable than other colored varieties, there are few opportunities for cross-market arbitrage. Day to day pay attention to the overnight trend of London aluminum and use it to assist the judgment of the trend of Shanghai aluminum.

From the spot price trend of aluminum, we can see that since 2019, the current price spread of aluminum has expanded briefly and has now returned to the normal range of spot discount.

The global multi-space intertwined pattern is presented.

Short expectation of domestic market repair

The global macro shows a situation of multi-space interweaving. Us economic data improved, the US ISM manufacturing index in March 55.3, higher than expected 54.5 and the previous value of 54.2, indicating that the US manufacturing industry picked up in March; The number of non-farm payrolls in the United States increased by 196000 in March, higher than expected by 177000. At the same time, eurozone economic data fell short of expectations, with an initial CPI of 1.4 per cent in March from a year earlier, below expectations of 1.5 per cent; The manufacturing sector also showed signs of slowing, with PMI falling for nine months in a row to a final value of 47.5 in March, the lowest since 2013.

Expectations of macro shortness in the domestic market have been repaired. The Ministry of Finance, the State Administration of Taxation and the General Administration of Customs issued a joint announcement on March 21, announcing the formal implementation of the VAT tax rate reduction policy on April 1. The reduction in the value-added tax rate is unprecedented. According to the notice on deepening the Reform of value-added tax issued by the three departments, starting from April 1, 2019, ordinary value-added tax taxpayers have engaged in value-added tax taxable sales or imported goods. Where the tax rate of 16% is originally applied, the tax rate shall be adjusted to 13%; Where the tax rate of 10% was originally applied, the tax rate shall be adjusted to 9%. This tax rate adjustment highlights that fiscal policy will replace monetary policy as the main direction of national macro-control in the future. After the previous counter-cyclical regulation and control combined with a series of stimulus measures, the policy effect has been initially shown, social finance, PMI and other macroeconomic data show that the economy has warmed up. The official manufacturing PMI index for March was 50.5%, about 1.2 percentage points higher than the average from January to February and the highest since October 2018. The Caixin manufacturing PMI employment sub-index hit a more than six-year high in March, reflecting the stabilization of economic activity. In view of the fact that the effect of the domestic policy backing is beginning to appear, we should not be overly pessimistic about the demand side, but we still need real estate, foreign trade and consumption data from March to April to further confirm that if the confirmation is valid, We do not rule out the possibility of a further rebound in aluminum prices.

To sum up, the domestic manufacturing PMI index (according to the National Bureau of Statistics) and the US non-agricultural data performed better than expected in March, easing the market's worries about the global economic downturn to some extent, and macro expectations improved.

Price rebound

Alumina supply is still in excess

The global aluminium supply and demand gap was quickly patched up in February. According to WBMS statistics, the cumulative value of aluminum supply and demand balance by February 2019 is-2.06, almost all the gaps have been filled compared with the previous value of-85.90.

Since the implementation of supply-side structural reform in 2017, the production capacity and output of electrolytic aluminum in China have been effectively controlled. In the current policy environment, disorderly capacity expansion has been strictly prohibited, the increment of industry capacity is only capacity replacement and compliance capacity indicators. After July 2018, electrolytic aluminum enterprises gradually began to lose money, and with the decline of aluminum prices and the rise of alumina prices, the loss gradually increased. This has led to a large number of electrolytic aluminum costs higher than the industry average and enterprises themselves under great financing pressure to reduce production and stop production one after another. At present, although the profit situation of electrolytic aluminum enterprises has improved, it is difficult for them to increase production and resume production on a large scale in the short term. Therefore, the pressure on aluminum prices on the supply side is limited in the second quarter, which provides conditions for the rebound of aluminum prices.

Alumina supply is still in surplus. Since the end of 2018, electrolytic aluminum enterprises have experienced concentrated production reduction due to capacity transfer and high-cost capacity withdrawal, export markets have been closed, and alumina has changed from tight supply to excess supply. The short-term alumina price is supported by cost and the factors of maintenance and foreign postponement of production are expected to stop falling, but the high investment and output at home and abroad throughout the year still make alumina price pressure. In terms of production capacity, the domestic alumina production capacity is expected to increase by 5.1 million tons in 2019, accounting for a total new production capacity of 8.1 million tons in Shanghai Drew. Shandong Qixing Aluminum started baking furnace on March 17 and is expected to produce 15000 tons in March. Jingxi Tiangui Aluminum plans to produce 1 million tons of alumina in the first half of the year. Emirates Aluminum plans to put into production in April and produce in May. At present, the production cost of alumina in the northern region is about 500 yuan / ton higher than that in the southwest region. The transfer of electrolytic aluminum production capacity leads to demand, low and rich bauxite resources and convenient overseas transportation conditions. The southwest and coastal areas have become the main areas of new alumina production capacity.

Demand expectation improvement

Consumption and exports are worth looking forward to

Demand for electrolytic aluminum is expected to improve in the second quarter. Real estate aluminum will be the backbone of aluminum ingots de-inventory, and power grid aluminum is expected to become the bright spot of aluminum consumption in the second quarter. Although weak car production and marketing will drag down aluminum demand, aluminum exports will become a marginal improvement variable of aluminum demand. The removal of aluminum ingots from inventory in the second quarter is worth looking forward to. First of all, in real estate, from the perspective of new housing construction area and new housing completion area, the cumulative year-on-year growth rate of new housing construction area since June 2018 has been more than 10%, and the high starting rate from September to December has been maintained at more than 15%. Although judging from the completed area of the new house, since June 2018, the cumulative growth rate of the completed area has been less than-10% compared with the same period last year, but the area newly started in the early period is expected to continue to increase under the condition of abundant funds in the market. In the second quarter, there was a rebound in the area of completion, which in turn stimulated the demand for aluminum for real estate. In addition, new construction orders rose 5.9 percentage points to 57.9 per cent in March from the previous month. With the approval of infrastructure projects and the availability of funds, infrastructure investment is expected to maintain a stable recovery trend, therefore, real estate is the main force to support the storage of aluminum ingots in the second quarter.

The power grid is likely to become a hot spot of aluminum consumption in the second quarter. Electricity demand accounts for about 12 per cent of aluminium consumption, mainly on aluminium cables, especially steel-cored aluminium strands for UHV construction. In the second half of 2018, the growth rate of power grid investment is obvious, the national network has completed a new round of bidding, and the growth rate of power grid investment has picked up obviously. And in recent years, the power grid investment is mainly concentrated in the UHV field, which directly supports the consumption of aluminum cables. On September 7, 2018, the National Energy Administration approved five UHV DC lines and seven UHV AC line construction projects. According to SMM's estimate, if the construction of the planned nine lines is completed, it will pull about 680000 tons of aluminum. This will provide an increase in aluminum consumption. After March, there will be a dense delivery period for aluminum cables, which will greatly boost the demand for aluminum, and aluminum for the power grid will become a bright spot in aluminum demand in the second quarter.

Aluminum exports may be another variable in improving aluminum demand. In 2018, domestic aluminum export data are bright, with a total of 5.802 million tons of unforged aluminum and aluminum exports for the whole year, an increase of 20.87 percent over 2017. Aluminum exports hit a five-year high of 550000 tons in January 2019. Aluminum exports fell 38 per cent to 340000 tons in February compared with January because of the Spring Festival. However, in March, aluminum exports of 546000 tons, once again returned to high growth, aluminum exports will continue to maintain a relatively satisfactory growth rate in the future.

The momentum of going to the library is good.

The bullish market is supported

The decreasing trend of electrolytic aluminum inventory is good. As of April 25, the Shanghai Futures Exchange aluminum inventory is 398000 tons, LME aluminum inventory is 1.0278 million tons, in addition, the national aluminum ingot social inventory of 1.539 million tons, continue to be in a downward trend. At present, whether in the last period or LME inventory, compared with the past five years have been maintained at a low level, social inventory also reflects the good momentum of aluminum ingots to go to storage since this year. With the warming of demand in the second quarter, it is expected that the electrolytic aluminum inventory will continue to go to the storage state, which has a strong supporting effect on the long market of aluminum.

Weakening of cost-side support

Profits of electrolytic aluminum enterprises have been repaired

At present, the price of alumina is still low, which is mainly affected by the light market demand, the pressure of cost management and so on. The price of thermal coal is also in a weak state, mainly due to the weak demand for coal, the willingness to purchase downstream is not strong, the short-term thermal coal is mainly consumption inventory, the price is slightly volatile; On the other hand, the price of the prebaked anode stabilized. In April, the basic purchase price of the prebaked anode in Weiqiao was originally reduced by 190 yuan / ton, and then renegotiated with the carbon enterprise, and then reduced to 150yuan / ton to 3030 yuan / ton. At present, the supply of prebaked anode is sufficient. The demand is still weak. The anode enterprises that stopped production in Henan area basically resumed production from mid-to-late March to mid-April 2019, the supply increased, and the anode price may be further reduced. On the whole, the cost-side support is weakened, the profits of electrolytic aluminum production enterprises have been repaired, and the willingness to resume production of aluminum plants in the later stage may be enhanced.

To sum up, the macro-economy is expected to improve as a whole, from the situation of the aluminum industry chain, the fundamentals have improved, especially the demand-side warming-driven aluminum prices continue to go to the warehouse in the second quarter. Aluminum prices do not have the space to turn around and fall deeply in the short term, and it is expected that aluminum prices will maintain a strong probability of concussion in the short term. From a technical point of view, Shanghai Aluminum main contract will continue to test the 14800 line of pressure. Should focus on watching whether in this line near the callback, if the callback can still follow up more orders, in the second quarter as a whole, the proposal is still treated with more ideas.

Price

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Aluminum Ingot
Dec.10
14110.0
50.0
(0.36%)
Aluminum Ingot - Fo Shan
Dec.10
14110.0
50.0
(0.36%)
Aluminum Ingot - Wu Xi
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(0.21%)
Aluminum Ingot - Hang Zhou
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Aluminum Ingot - Chong Qing
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[institutional point of view] Shanghai aluminum demand recovery price center will rise in the second quarter

Translation 09:56:28AM May 14, 2019 Source:Huizhou merchant futures
The content below was translated by Tencent automatically for reference.

SMM News: since 2019, the main contract of Shanghai Aluminum Futures has rebounded since January 15, when it hit the bottom of the cost of 13230 points, closing at 14240 points as of April 25, an increase of 7.63 per cent. From the end of 2018 to the beginning of 2019, the electrolytic aluminum enterprises concentrated on the elimination and transfer of production capacity, but under the suppression of low profit, the production speed of new projects was slow. Since 2019, the supply side of aluminum has been running smoothly, consumption has maintained a year-on-year upward trend, social inventory has continued, aluminum prices may remain strong and volatile, and upward space still needs to track the recovery of traditional major consumer industries.

From the inside and outside situation, the price ratio of Shanghai aluminum and LME aluminum has been maintained around 1.2 in recent years, and the trend of LME aluminum is also highly consistent with that of Shanghai aluminum. Moreover, the domestic aluminum price has always been stronger than that of LME aluminum, and there is a relatively stable price difference between them, but because the price comparison is more stable than other colored varieties, there are few opportunities for cross-market arbitrage. Day to day pay attention to the overnight trend of London aluminum and use it to assist the judgment of the trend of Shanghai aluminum.

From the spot price trend of aluminum, we can see that since 2019, the current price spread of aluminum has expanded briefly and has now returned to the normal range of spot discount.

The global multi-space intertwined pattern is presented.

Short expectation of domestic market repair

The global macro shows a situation of multi-space interweaving. Us economic data improved, the US ISM manufacturing index in March 55.3, higher than expected 54.5 and the previous value of 54.2, indicating that the US manufacturing industry picked up in March; The number of non-farm payrolls in the United States increased by 196000 in March, higher than expected by 177000. At the same time, eurozone economic data fell short of expectations, with an initial CPI of 1.4 per cent in March from a year earlier, below expectations of 1.5 per cent; The manufacturing sector also showed signs of slowing, with PMI falling for nine months in a row to a final value of 47.5 in March, the lowest since 2013.

Expectations of macro shortness in the domestic market have been repaired. The Ministry of Finance, the State Administration of Taxation and the General Administration of Customs issued a joint announcement on March 21, announcing the formal implementation of the VAT tax rate reduction policy on April 1. The reduction in the value-added tax rate is unprecedented. According to the notice on deepening the Reform of value-added tax issued by the three departments, starting from April 1, 2019, ordinary value-added tax taxpayers have engaged in value-added tax taxable sales or imported goods. Where the tax rate of 16% is originally applied, the tax rate shall be adjusted to 13%; Where the tax rate of 10% was originally applied, the tax rate shall be adjusted to 9%. This tax rate adjustment highlights that fiscal policy will replace monetary policy as the main direction of national macro-control in the future. After the previous counter-cyclical regulation and control combined with a series of stimulus measures, the policy effect has been initially shown, social finance, PMI and other macroeconomic data show that the economy has warmed up. The official manufacturing PMI index for March was 50.5%, about 1.2 percentage points higher than the average from January to February and the highest since October 2018. The Caixin manufacturing PMI employment sub-index hit a more than six-year high in March, reflecting the stabilization of economic activity. In view of the fact that the effect of the domestic policy backing is beginning to appear, we should not be overly pessimistic about the demand side, but we still need real estate, foreign trade and consumption data from March to April to further confirm that if the confirmation is valid, We do not rule out the possibility of a further rebound in aluminum prices.

To sum up, the domestic manufacturing PMI index (according to the National Bureau of Statistics) and the US non-agricultural data performed better than expected in March, easing the market's worries about the global economic downturn to some extent, and macro expectations improved.

Price rebound

Alumina supply is still in excess

The global aluminium supply and demand gap was quickly patched up in February. According to WBMS statistics, the cumulative value of aluminum supply and demand balance by February 2019 is-2.06, almost all the gaps have been filled compared with the previous value of-85.90.

Since the implementation of supply-side structural reform in 2017, the production capacity and output of electrolytic aluminum in China have been effectively controlled. In the current policy environment, disorderly capacity expansion has been strictly prohibited, the increment of industry capacity is only capacity replacement and compliance capacity indicators. After July 2018, electrolytic aluminum enterprises gradually began to lose money, and with the decline of aluminum prices and the rise of alumina prices, the loss gradually increased. This has led to a large number of electrolytic aluminum costs higher than the industry average and enterprises themselves under great financing pressure to reduce production and stop production one after another. At present, although the profit situation of electrolytic aluminum enterprises has improved, it is difficult for them to increase production and resume production on a large scale in the short term. Therefore, the pressure on aluminum prices on the supply side is limited in the second quarter, which provides conditions for the rebound of aluminum prices.

Alumina supply is still in surplus. Since the end of 2018, electrolytic aluminum enterprises have experienced concentrated production reduction due to capacity transfer and high-cost capacity withdrawal, export markets have been closed, and alumina has changed from tight supply to excess supply. The short-term alumina price is supported by cost and the factors of maintenance and foreign postponement of production are expected to stop falling, but the high investment and output at home and abroad throughout the year still make alumina price pressure. In terms of production capacity, the domestic alumina production capacity is expected to increase by 5.1 million tons in 2019, accounting for a total new production capacity of 8.1 million tons in Shanghai Drew. Shandong Qixing Aluminum started baking furnace on March 17 and is expected to produce 15000 tons in March. Jingxi Tiangui Aluminum plans to produce 1 million tons of alumina in the first half of the year. Emirates Aluminum plans to put into production in April and produce in May. At present, the production cost of alumina in the northern region is about 500 yuan / ton higher than that in the southwest region. The transfer of electrolytic aluminum production capacity leads to demand, low and rich bauxite resources and convenient overseas transportation conditions. The southwest and coastal areas have become the main areas of new alumina production capacity.

Demand expectation improvement

Consumption and exports are worth looking forward to

Demand for electrolytic aluminum is expected to improve in the second quarter. Real estate aluminum will be the backbone of aluminum ingots de-inventory, and power grid aluminum is expected to become the bright spot of aluminum consumption in the second quarter. Although weak car production and marketing will drag down aluminum demand, aluminum exports will become a marginal improvement variable of aluminum demand. The removal of aluminum ingots from inventory in the second quarter is worth looking forward to. First of all, in real estate, from the perspective of new housing construction area and new housing completion area, the cumulative year-on-year growth rate of new housing construction area since June 2018 has been more than 10%, and the high starting rate from September to December has been maintained at more than 15%. Although judging from the completed area of the new house, since June 2018, the cumulative growth rate of the completed area has been less than-10% compared with the same period last year, but the area newly started in the early period is expected to continue to increase under the condition of abundant funds in the market. In the second quarter, there was a rebound in the area of completion, which in turn stimulated the demand for aluminum for real estate. In addition, new construction orders rose 5.9 percentage points to 57.9 per cent in March from the previous month. With the approval of infrastructure projects and the availability of funds, infrastructure investment is expected to maintain a stable recovery trend, therefore, real estate is the main force to support the storage of aluminum ingots in the second quarter.

The power grid is likely to become a hot spot of aluminum consumption in the second quarter. Electricity demand accounts for about 12 per cent of aluminium consumption, mainly on aluminium cables, especially steel-cored aluminium strands for UHV construction. In the second half of 2018, the growth rate of power grid investment is obvious, the national network has completed a new round of bidding, and the growth rate of power grid investment has picked up obviously. And in recent years, the power grid investment is mainly concentrated in the UHV field, which directly supports the consumption of aluminum cables. On September 7, 2018, the National Energy Administration approved five UHV DC lines and seven UHV AC line construction projects. According to SMM's estimate, if the construction of the planned nine lines is completed, it will pull about 680000 tons of aluminum. This will provide an increase in aluminum consumption. After March, there will be a dense delivery period for aluminum cables, which will greatly boost the demand for aluminum, and aluminum for the power grid will become a bright spot in aluminum demand in the second quarter.

Aluminum exports may be another variable in improving aluminum demand. In 2018, domestic aluminum export data are bright, with a total of 5.802 million tons of unforged aluminum and aluminum exports for the whole year, an increase of 20.87 percent over 2017. Aluminum exports hit a five-year high of 550000 tons in January 2019. Aluminum exports fell 38 per cent to 340000 tons in February compared with January because of the Spring Festival. However, in March, aluminum exports of 546000 tons, once again returned to high growth, aluminum exports will continue to maintain a relatively satisfactory growth rate in the future.

The momentum of going to the library is good.

The bullish market is supported

The decreasing trend of electrolytic aluminum inventory is good. As of April 25, the Shanghai Futures Exchange aluminum inventory is 398000 tons, LME aluminum inventory is 1.0278 million tons, in addition, the national aluminum ingot social inventory of 1.539 million tons, continue to be in a downward trend. At present, whether in the last period or LME inventory, compared with the past five years have been maintained at a low level, social inventory also reflects the good momentum of aluminum ingots to go to storage since this year. With the warming of demand in the second quarter, it is expected that the electrolytic aluminum inventory will continue to go to the storage state, which has a strong supporting effect on the long market of aluminum.

Weakening of cost-side support

Profits of electrolytic aluminum enterprises have been repaired

At present, the price of alumina is still low, which is mainly affected by the light market demand, the pressure of cost management and so on. The price of thermal coal is also in a weak state, mainly due to the weak demand for coal, the willingness to purchase downstream is not strong, the short-term thermal coal is mainly consumption inventory, the price is slightly volatile; On the other hand, the price of the prebaked anode stabilized. In April, the basic purchase price of the prebaked anode in Weiqiao was originally reduced by 190 yuan / ton, and then renegotiated with the carbon enterprise, and then reduced to 150yuan / ton to 3030 yuan / ton. At present, the supply of prebaked anode is sufficient. The demand is still weak. The anode enterprises that stopped production in Henan area basically resumed production from mid-to-late March to mid-April 2019, the supply increased, and the anode price may be further reduced. On the whole, the cost-side support is weakened, the profits of electrolytic aluminum production enterprises have been repaired, and the willingness to resume production of aluminum plants in the later stage may be enhanced.

To sum up, the macro-economy is expected to improve as a whole, from the situation of the aluminum industry chain, the fundamentals have improved, especially the demand-side warming-driven aluminum prices continue to go to the warehouse in the second quarter. Aluminum prices do not have the space to turn around and fall deeply in the short term, and it is expected that aluminum prices will maintain a strong probability of concussion in the short term. From a technical point of view, Shanghai Aluminum main contract will continue to test the 14800 line of pressure. Should focus on watching whether in this line near the callback, if the callback can still follow up more orders, in the second quarter as a whole, the proposal is still treated with more ideas.