Metals News
[agency Review] Fed interest rate cut expects to strengthen or narrow Shanghai-London ratio in Aluminum Market
Jul 17,2019
The content below was translated by Tencent automatically for reference.

SMM News: on the one hand, due to the reduction of raw material prices, the profit level of electrolytic aluminum enterprises has improved, and the willingness to reduce production of short-term electrolytic aluminum is not strong; on the other hand, in the low season of consumption in the lower reaches of July, the demand performance is average, and the decline in inventory slows down obviously.

July is still the aluminum market consumption off-season, demand-side performance is average, aluminum prices on the action can be limited. In addition, the price of raw material alumina and prebaked anode continues to decline, which also leads to the reduction of electrolytic aluminum production cost and weakens the support of aluminum market. Overall, there is no bright spot on the fundamentals of the aluminum market, aluminum or continue to operate under pressure.

Prices of raw materials continue to fall

As the main raw material of electrolytic aluminum, alumina price has been falling since mid-June. As of July 12, Shanxi alumina price was 2629 yuan / ton, which was at a low level for the year. In April, the impact of the environmental protection incident at the Shanxi alumina plant on alumina prices was fully digested. In addition, the Alunorte alumina plant in Brazil has been revamped, environmental protection has been met, part of the production capacity has been restored, resulting in a significant decline in overseas alumina prices, so that domestic alumina exports no longer have an advantage. According to customs data, alumina exports in May were 7536 tons, down 91.6 percent from the same period last year. Alumina imports in May were 60, 000 tons, an increase of 134.9 percent over the same period last year. Alumina exports decreased and imports increased, which will aggravate the situation of excess domestic alumina supply. Alumina prices are expected to continue to operate under pressure.

In addition to alumina, the average price of prebaked anode also continues to decrease. As of July 12, the average price of alumina in East China, Central China, Southwest and Northwest China was 3396.25 yuan / ton, which was at a low level in nearly a month and a half. At present, the domestic prebaked anode is still in excess of demand, and its price will continue to be under pressure.

The decline in the price of raw materials has led to a continuous decline in the production cost of electrolytic aluminum, and the support for aluminum has gradually weakened. It is estimated that as of July 12, the average cost of electrolytic aluminum was 13140.87 yuan / ton, nearly 1000 yuan / ton lower than in mid-June, which is at a low level for the year. From the profit level of electrolytic aluminum enterprises, the current profit of electrolytic aluminum enterprises is still good, the average profit of one ton is about 570 yuan / ton. As a result of the reduction in raw material prices, the profit level of electrolytic aluminum enterprises has improved, and the willingness to reduce production of short-term electrolytic aluminum is not strong, so it is difficult for the supply side to form a boost to Shanghai aluminum.

Downstream demand is difficult to boost

July is the aluminum market downstream consumption off-season, demand-side performance is average, it is difficult to boost aluminum prices. From the inventory point of view, the decline in aluminum futures inventory slowed significantly. As of July 12, aluminum stocks on the Shanghai Futures Exchange were 419050 tons, down 2662 tons from last week, of which futures stocks were 155266 tons, down 5515 tons from last week. Inventories have fallen less than during the peak consumer season in March and April. In addition, social stocks, as of July 11, SMM statistics of five-place electrolytic aluminum social stocks of 1.042 million tons, an increase of 14000 tons over the previous week, stocks showed a small accumulation.

To sum up, in the case of general fundamental performance, Shanghai Aluminum main contract 1908 pressure operation, the operating range of 13500 to 14000 yuan / ton. In addition, according to the research on aluminum profile enterprises in Shanghai Color Network, July entered the traditional seasonal off-season, according to some research enterprises, this year's market is not as good as last year. SMM believes that the real estate market was relatively active last year, and orders for building materials and some industrial materials performed well, resulting in a non-light phenomenon in the off-season. As a result, the overall operating rate of profiles in July last year was relatively high, and this year will enter the normal off-season. It is difficult to reproduce the good state of last year, so the starting rate will be inferior to that of the same period last year. From the point of view of the aluminum foil industry, according to SMM statistics, the operating rate of China's aluminum foil industry was 87.83% in June, 0.85% lower than in May and 2% lower than the same period last year. In July, the arrival of high temperature weather has limited the production of some terminal industries such as food enterprises, and upward transmission is bound to suppress the number of orders received by relevant aluminum foil manufacturers. To sum up, with the official arrival of the off-season, the starting rate of the aluminum foil industry is expected to decline further in July.

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