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Investigation of the downstream of Jiangsu and Zhejiang Aluminum-mixed joys and sorrows can be expected in the peak season.
Sep 2,2020 14:37CST
translation
Source:Dongzheng derivative futures
The content below was translated by Tencent automatically for reference.

SMM: report date: August 31, 2020

Main conclusions of downstream investigation of Jiangsu and Zhejiang Aluminum

Civil aluminum consumption is obvious in the off-season, and infrastructure aluminum consumption is higher than expected. Infrastructure consumption is relatively good, power grid orders are sufficient and stable, and rail transit and aerospace orders are much better than expected. Civil aluminum consumption is currently in the off-season, as of the research period, there are no signs of improvement downstream. In addition, the export situation was not optimistic in the first half of the year, with many small factories shutting down or transforming other businesses. The overall enterprise raw material inventory is at a reasonable level, and there is no phenomenon that the processing or terminal links in the market are more than expected during the research period.

Looking forward to gold, silver and silver, the feedback from downstream and traders is generally more optimistic. The recovery in consumption in this year's peak season may come from the following growth points: the first is the traditional seasonal recovery, the second is the post-disaster reconstruction consumption brought about by this year's floods, and the third is the recovery of aluminum exports brought about by the improvement in overseas consumption. According to the situation in previous years, there will be a significant improvement in downstream orders around mid-September, so the downstream performance in the next two weeks is worth paying attention to.

The release of primary aluminum supply accelerated, but the short-term impact was limited. On the one hand, the increase in short-term aluminum ingots is due to weaker consumption, the upstream reduction in the ratio of aluminum to water, and on the other hand, due to the impact of a large number of overseas aluminum ingot imports on the domestic market. From August to October, more than 1.5 million tons of electrolytic aluminum will enter the market. However, as the consumption in the lower reaches of September and October is the peak season, the proportion of molten aluminum is expected to decrease. In addition, with the narrowing of import profits, the amount of imported aluminum flowing into China will also decrease significantly in the future. Therefore, we believe that the number of aluminum ingots that hit the market in the short term is relatively limited.

Investment suggestion

From the perspective of research, we are relatively optimistic about consumption in this year's peak season. Of course, the increase in supply should not be underestimated, but taking into account the need for a certain release cycle of production capacity and a reduction in the impact of imports, we do not think we need to be too pessimistic about the release of supply in the short term. We expect inventory to be de-stocked in September. In the context of current low inventory and low warehouse orders, it is recommended to buy unilaterally on the bargain side, and the main contract of Shanghai Aluminum is expected to hit the Wanwu pass. Domestic intertemporal arbitrage is mainly based on positive arbitrage.

Risk hint

With the intensification of global trade frictions, the novel coronavirus epidemic has repeatedly dragged down the economy.

Full text of the report

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Main conclusions of downstream investigation of Jiangsu and Zhejiang Aluminum

1) the off-season of civil aluminum consumption is obvious, and the aluminum consumption of capital construction is higher than expected.

The growth rate of domestic electrolytic aluminum consumption was 3.18% in August and-3.43% in the same period last year. From January to August, the cumulative growth rate of domestic electrolytic aluminum consumption increased by 1.98%, which was significantly better than-0.88% in the same period last year. Although the impact of the domestic epidemic in February and March caused a double-digit decline in domestic primary aluminum consumption, it began to repair quickly in April, with the apparent consumption growth rate of primary aluminum exceeding 10% for two consecutive months in May and June, not only repairing the losses caused by the epidemic, but also pushing the cumulative consumption growth rate to a 19-year high.

Combined with the research situation, there is a certain differentiation in downstream consumption: infrastructure consumption is relatively good, power grid orders are sufficient and stable, rail transit and aerospace orders are much better than expected. Civil aluminum consumption is currently in the off-season, as of the research period, there are no signs of improvement downstream. In addition, the export situation was not optimistic in the first half of the year, with many small factories shutting down or transforming other businesses. The overall enterprise raw material inventory is at a reasonable level, during the research period, there is no market concern about the processing or terminal links exceed the expected accumulation of the phenomenon. The inventory level of finished products is also similar to that of the same period last year, indicating that the overall recovery of the terminal after the epidemic is good. The survey results of raw material and finished product inventory are in good agreement with the data of SMM.

Looking forward to gold, silver and silver, the feedback from downstream and traders is generally more optimistic. We believe that the recovery in consumption in this year's peak season may come from the following growth points: the first is the traditional seasonal recovery, the second is the post-disaster reconstruction consumption brought about by this year's floods, and the third is the recovery of aluminum exports brought about by the improvement in overseas consumption. According to the situation in previous years, there will be a significant improvement in downstream orders around mid-September, so the downstream performance in the next two weeks is worth paying attention to.

2) the release of primary aluminum supply is accelerated, but the short-term impact is limited.

In July, the domestic output of electrolytic aluminum was 3.1388 million tons, an increase of 0.52% over the same period last year. The total output from January to July was 21.3201 million tons, a cumulative increase of 0.97% over the same period last year At present, on the whole, the supply pressure of the industry is not great. The increase in short-term aluminum ingots in storage is due to the weakening consumption, on the one hand, the upstream reduction of the ratio of aluminum to water, and on the other hand, due to the impact of a large number of overseas aluminum ingot imports on the domestic market.

As the current average profit of the industry is nearly 2000 yuan / ton, the willingness to put in new production capacity is very high, and the domestic new production capacity will enter the acceleration period in the next three months, and more than 1.5 million tons of production capacity will enter the market from August to October. However, as consumption in the lower reaches of September and October is the peak season, the proportion of molten aluminum is expected to rise, and the number of aluminum ingots that impact the market is relatively limited. In addition, with the narrowing of import profits, the amount of imported aluminum flowing into China will also decrease significantly in the future. So our judgment on the supply side is that the pressure is increasing over time, but the pressure in September and October is OK.

[research report-aluminum] investigation of the downstream of Jiangsu and Zhejiang Aluminum-mixed joys and sorrows, and the peak season can be expected.

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Investment suggestion

The core of the market in the next month or two lies in the game between the continuous release of supply and the recovery of consumption. From the perspective of research, we are relatively optimistic about consumption in this year's peak season. Of course, the increase in supply should not be underestimated, but taking into account the need for a certain release cycle of production capacity and a reduction in the impact of imports, we do not think we need to be too pessimistic about the release of supply in the short term. In addition, the recovery of overseas manufacturing lags behind that of China, and it is expected to see an improvement in export orders for aluminum products in the coming period of time. We expect that inventories will be de-stocked in September. In the context of the current low inventory and low warehouse orders, we suggest that the idea of buying on a bargain is appropriate unilaterally, and the main contract of Shanghai Aluminum is expected to hit the Wanwu pass. Domestic intertemporal arbitrage is mainly based on positive arbitrage.

three

Detailed investigation of major aluminum enterprises in Jiangsu and Zhejiang

1) Aluminum cable processing enterprise A

The enterprise is a professional wire and cable manufacturing enterprise integrating scientific research, design, manufacturing and sales. The aluminum products involved include high-strength heat-resistant aluminum alloy strands with a conductivity of 60%, medium-strength heat-resistant aluminum alloy strands, steel core aluminum alloy strands, aluminum tube support expanding busbars, a series of aluminum alloy wires for large cross-section and long-span transmission projects, 500kV ultra-high voltage power cables, aluminum alloy cables, and so on. In addition to domestic sales, the products are also exported to Africa, Latin America, Southeast Asia and Hong Kong and Macao. The monthly output of aluminum cable is about 5000 tons. The device runs at full load. Orders mainly come from national grid, southern grid, five major power generation companies, rail transit, aerospace and so on. Orders have improved so far this year compared with the same period last year, with the main increase coming from rail transit. Orders are fully booked in the coming month, and we are optimistic about the order situation in the second half of the year. The inventory level of raw materials is low, which is the same as that of last year, and the inventory of finished products is also low. There are plans for capacity expansion in the future.

2) Aluminum Cable processing Enterprise B

The enterprise is a high-tech enterprise in Jiangsu Province with transmission line overhead conductors, enamelled round winding wires and electrical aluminum rods as its main products. It has an annual production capacity of 80,000 tons of various types of overhead steel core aluminum strands, 20,000 kilometers of overhead insulated wires and 60,000 tons of electrical aluminum rods. The device is running at full capacity, and the order situation this year is generally slightly smaller than that of last year, and the UHV part does not provide too much increment as expected. The stock of raw materials is at a normal level. Cable orders are expected to remain relatively stable in the second half of the year.

3) Aluminum trader C

Enterprises mainly trade in aluminum ingots, aluminum bars, aluminum rods and cables. Before the epidemic, the trade volume was 4000-5000 tons / day, but after the epidemic it shrank to 1000-2000 tons / day. The source of goods comes from aluminum mills and traders, and the upstream supply has increased recently. The downstream is mainly processing enterprises, and the downstream is currently willing to take goods in general, which is similar to that of the same period last year. Although aluminum prices have experienced a bottoming recovery, there has been no significant downstream hoarding of stocks at normal levels. Consumption in the lower reaches of the peak season is expected to improve probably around mid-September.

4) Warehouse D

The enterprise is a modern comprehensive logistics service base integrating non-ferrous metal warehousing, ferrous metal warehousing and processing, logistics and distribution, futures trading, market trading, information services, e-commerce and financial services. The main colored varieties involved in the warehouse include copper, aluminum, zinc, lead and so on. Aluminum ingot storage capacity of 120000 tons, the existing stock of about 50, 000 tons. Since the epidemic, the inventory of aluminum ingots has been eliminated continuously, and the overall arrival volume is very small. Recently, the inventory volume is also very small, but due to the decline in the output of the warehouse, the inventory has remained basically stable. A considerable part of the inventory is financing ingots, and the overall supply of negotiable goods is relatively limited. A new round of destocking is expected to be reopened in September.

5) Warehouse E

The enterprise is a comprehensive logistics service system of bulk materials with warehousing as the core, transportation, processing, spot market, financial logistics, logistics and trade and other functions. The total amount of aluminum ingots including warehouse receipts is about 100000 tons, of which the warehouse receipts are less than 20, 000 tons, and the proportion of pledged goods is relatively high. Recently, with the reduction of the proportion of molten aluminum, inventory has a certain rebound pressure. The overall out-of-warehouse level is general, and downstream consumption is still relatively weak at present. There is a relatively lack of deliverables in the market, and there are few delivery brands on the one hand, on the one hand, it is because aluminum plants with delivery qualifications are not produced in full accordance with delivery standards. Relatively optimistic about consumption in September and October, inventory is expected to disappear during the peak season.

four

Risk hint

With the intensification of global trade frictions, the novel coronavirus epidemic has repeatedly dragged down the economy.

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