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Guard against the rise and fall of aluminum prices and maintain the stability of the industry
Jul 14,2020 10:50CST
translation
Source:China Nonferrous Metals Daily
The content below was translated by Tencent automatically for reference.

SMM News: as a basic raw material, aluminum prices should be "stable" at the head of the word, guard against the rise and fall of aluminum prices. Historical experience tells us that there must be big ups and downs after the big rise, and the appropriate and relatively stable aluminum price is conducive to the healthy development of the aluminum industry chain. Considering comprehensively the factors such as the cost of electrolytic aluminum, the profit level of each link of the industrial chain, downstream consumption and substitution competitiveness, combined with the historical trend of aluminum price, and from the point of view of building a community with a shared future for the aluminum industry chain, the appropriate and relatively stable aluminum price in a certain period of time should be at the level of 13000 yuan / ton.

Since February this year, domestic aluminum prices have gone out of a very strong "V" reversal market after experiencing a panic decline caused by the new crown pneumonia epidemic. On July 10, the main contract of Shanghai Aluminum closed at 14375 yuan / ton, a new high for the year, up 3120 yuan / ton, or 27.7%, from the lowest point of 11255 yuan / ton on April 2. Over the same period, Lomalco also rebounded from its lows, closing at $1659 a tonne on July 9, up 16.5 per cent from its low for the year.

This round of aluminum price rise has been driven by a number of factors. We believe that: first, with the improvement of the epidemic situation in China, domestic demand is gradually repaired; second, the epidemic has led to a substantial decline in the recovery of domestic waste aluminum, while imports continue to decline, and the supply of waste aluminum was tight for a time. As a result, the replacement of original aluminum to waste aluminum increased by about 350000 ~ 400000 tons. Third, after the sharp plunge in aluminum prices at the end of March, the whole industry chain stores aluminum: upstream sales, dealers take the initiative to hoard, aluminum processing terminal field orders in advance, processing enterprises purchase raw materials on a large scale; fourth, explicit inventory has dropped rapidly from a high of 1.68 million tons at the end of March to 710000 tons on July 10, with a tight spot supply atmosphere; fifth, abnormal speculation has appeared in the spot and futures markets, fuelling the rise in aluminum prices.

Is the current aluminum price sustainable? Is it conducive to the stability of the industrial chain? The market views are different. We believe that although the rapid rise in aluminum prices and high aluminum prices have positive effects, the negative effects are more worthy of our attention and vigilance.

The positive ones are: first, it has promoted the steady return to work and production of the whole industry chain, and the profit-making effect of aluminum storage in the whole industry chain is obvious; second, the profitability of alumina, electrolytic aluminum and auxiliary materials industry has been significantly improved. Take the electrolytic aluminum industry as an example, after experiencing a short overall loss, it turned a loss into a profit in May and further improved its profit level in June. In June, the weighted average complete cost of electrolytic aluminum in the industry was 11988 yuan / ton. compared with the spot price of 13810 yuan / ton in that month, the theoretical profit per ton of aluminum was 1822 yuan / ton, exceeding the best profit level of last year, and the profit area of the whole industry was close to 100%.

The negative ones are: first, the import of unwrought aluminum (primary aluminum) and aluminum alloy has increased significantly, which has an impact on the domestic aluminum market. As the increase of domestic aluminum price is much higher than that of foreign countries, the strong and weak foundation of aluminum price at home and abroad has been continuously solid, and the domestic and foreign price ratio has jumped to more than 8.5 since the end of April, reaching a new high since 2009. The import window of unwrought aluminum and alloy has been opened. Customs data show that from January to May, imports of unwrought aluminum and aluminum alloys totaled 374000 tons, a year-on-year increase of 415%. According to the calculation and investigation of import profit space, a large number of unwrought aluminum imports will be concentrated from July to August, and the total import volume for the whole year is expected to exceed 800000 tons.

Second, the strong internal and external weak aluminum price pattern hinders the export of aluminum products. Trade frictions superimpose the impact of the epidemic situation abroad, the situation of aluminum exports is already very grim, and the upside-down prices at home and abroad make aluminum exports even worse. Customs statistics show that from January to May, China's aluminum exports totaled 1.903 million tons, down 13.1% from the same period last year. We judge that the uncertainty of exports in the second half of the year will further increase.

Third, it brings new challenges to the supply-side structural reform of China's electrolytic aluminum industry. Driven by the rise in aluminum prices, the enthusiasm of domestic electrolytic aluminum production capacity construction and production has been rekindled. According to statistics, the new production capacity of electrolytic aluminum will be 680000 tons / year in the first half of 2020, and there will be 2.2 million tons / year production capacity in the second half of the year. The scale of electrolytic aluminum production capacity will reach 42.5 million tons / year by the end of the year. In the case of insufficient momentum of demand growth, the contradiction between supply and demand will be intensified, and the risk of sharp price decline will increase.

Fourth, the high aluminum price increases the consumption cost of aluminum products and reduces the competitiveness of aluminum materials to replace other materials, which is not conducive to the promotion of application and restrain the growth of demand.

As professionals engaged in aluminum industry research for many years, we are a little worried about the current market situation. Aluminum as a basic raw material, aluminum prices should be stable, guard against the ups and downs of aluminum prices, historical experience tells us that there must be big ups and downs after a big rise, appropriate and relatively stable aluminum prices are conducive to the healthy development of the aluminum industry chain. Considering comprehensively the factors such as the cost of electrolytic aluminum, the profit level of each link of the industrial chain, downstream consumption and substitution competitiveness, combined with the historical trend of aluminum price, and from the point of view of building a community with a shared future for the aluminum industry chain, the appropriate and relatively stable aluminum price in a certain period of time should be at the level of 13000 yuan / ton.

Of course, the trend of aluminum price has its own market operation law. What is the appropriate aluminum price? It should be up to the market to decide.

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