[minutes] Review of supply and demand of electrolytic aluminum in China in the first half of 2021 and prospects for the second half of the year

SMM7 March 21: in today's live online market conference hosted by SMM, SMM analyst Li Jiahui delivered a keynote speech on the review of China's electrolytic aluminum supply and demand in the first half of 2021 and the prospect of the second half of 2021. At the meeting, she introduced hot issues such as alumina and pre-baked anodes, and looked forward to the late electrolytic aluminum price from the aspects of supply and demand, import and export.

Cost side

2021 the cost end of electrolytic aluminum slowly rises and the rising trend in the second half of the year is expected to continue

Based on the quotation of SMM raw materials and auxiliary materials, the complete average cost of aluminum electrolysis in June was 14187 yuan / ton, up 12% from the same period last year, 1.5% from the previous month, and 933 yuan / ton from the beginning of January. The cost of domestic electrolytic aluminum is expected to continue to rise in the second half of the year.

The main reasons are as follows: (1) the rise of domestic electrolytic aluminum coal prices leads to the rise of thermal power generation costs, and the electricity prices of related electrolytic aluminum plants have been raised in varying degrees.

(2) the alumina market maintained a fluctuating range in the second half of the year.

(3) the prebaked anode may operate at a high level throughout the year.

Alumina and electrolytic aluminum prices deviate from the north-south upside-down situation is expected to maintain for a long time.

The trend of the alumina market deviated from that of the electrolytic aluminum market in the first half of the year. Alumina prices at home and abroad have declined step by step since 2019, and the price trends at home and abroad are basically the same. The price fluctuation in the first half of 2021 is relatively small. According to the SMM alumina price index, the average price of alumina in China is about 2683 yuan / ton in 2019 and about 2341 yuan / ton in 2020. (the lowest price in 17 years) the cumulative average price in 2021 is 2394 yuan / ton. There was a slight rebound over the same period last year. By contrast, the global price of electrolytic aluminum is high, and the price ratio of alumina to electrolytic aluminum is as low as 12%.

In addition, there is an obvious difference in alumina prices between the north and the south. In July, under the influence of a small reduction in production in the north, the alumina market gradually returned from surplus to balance or even a small shortage, and the extent of surplus in the north was smaller than that in the southwest, which also led to a high and stable price in the north. on the other hand, the spot turnover in the southwest market is light and it is difficult to narrow the price difference between the southwest market and the north.

The new volume and import of alumina in China in the second half of the year continue to put pressure on the price of alumina.

SMM view: the price range of alumina in China fluctuated in the second half of 2021, but the upper and lower space is relatively limited, and the cost side provides support. Attention is paid to: (1) the fluctuation of supply and demand at both ends of the supply and demand affected by the problems such as power restriction and ore shortage, and (2) the influence of inventory levels on spot trading activity, as well as policy changes: short-term safety and environmental protection inspection, the impact of medium-and long-term carbon neutralization on the alumina market, and so on.

List of newly updated production capacity of alumina in China from 2021 to 2022 (updated on July 12, 2021)

The price of pre-baked anode for aluminum continues to be strong in the second half of the year.

The domestic pre-baked anode market has started a continuous rise since July 2020, with a cumulative increase of 1800 yuan / ton, or 72%. So far, the factory price of pre-baked anode blocks in Shandong has reached 4300-4600 yuan / ton, the highest level since January 18.

The average export price of domestic pre-baked anode products has also reached record highs. SMM learned that the export price of FOB in June was about US $800-850 / ton.

The cost side of pre-baked anode continues to rise in the second half of the year.

Recently, delayed coking units in local refineries have been shut down for overhaul one after another, coupled with the fact that the previous maintenance equipment has not yet started to resume production, the supply of domestic petroleum coke resources has tightened, and the petroleum coke market has risen again, which is expected to be affected by both supply and demand in the second half of the year. some coke prices may have a small adjustment, but on the whole, the domestic price of medium-and high-sulfur petroleum coke is still running at a high level.

Up to now, the price of modified coal tar pitch in China is still fluctuating around 5100-5200 yuan / ton. From the perspective of the second half of the year, the supply of coal tar pitch may be expected to be released, but the raw material coal tar is in short supply, and deep processing enterprises may maintain a low-load start-up level, but taking into account the ability of the lower reaches to withstand high prices, the market is expected to fall.

On the whole, the cost end of domestic pre-baked anode is well supported, and the bottom support to maintain high operation in the second half of the year is still there.

Good demand at home and abroad. Domestic prebaked anode operating rate is better than that of the same period last year.

The operating rate of domestic prebaked anodes rebounded from January to June, and so far the operating rate of the industry has remained stable at about 77%. From January to June, the total output of domestic prebaked anodes was about 10.49 million tons, an increase of 16% over the same period last year.

Overseas demand remains stable. From January to June, the total export volume of China's prebaked anodes is about 800000 tons, and the total export volume for the whole year is expected to be 1.5 million tons.

行业产能过剩，对价格上行形成压制，预焙阳极价格长期依赖成本变化定价。预计下半年预焙阳极普块价格在4200-4500元/吨。

Supply end

The domestic electrolytic aluminum supply shows a slow rising trend in 2021. The new production capacity is obviously limited.

In the first half of 2021, domestic electrolytic aluminum output totaled 19.468 million tons, an increase of 8.10% over the same period last year. The increase is mainly due to the cumulative increase in electrolytic aluminum production capacity from 2020.10 to 2021.2, and the domestic electrolytic aluminum production grew by nearly 10% in March compared with the same period last year. However, Inner Mongolia carried out pressure production in March to ensure the completion of the "double control" task, and continued to increase in May, resulting in the suspension of production capacity of about 440000 tons in the region. Yunnan reduced production by about 940000 tons in mid-to-late May due to power shortages. The growth rate of domestic electrolytic aluminum production slowed in the second quarter, and the operating rate of electrolytic aluminum in Yunnan and Guizhou declined in May and June, of which Yunnan was about 20 per cent lower than in April. In June, the production capacity of electrolytic aluminum in Gansu and Henan was gradually reduced, and the operating rate was increased. By the beginning of July, China's electrolytic aluminum production capacity had reached 38.88 million tons per year, with an effective production capacity of 43.804 million tons per year, with an operating rate of 88.8 percent of the country's electrolytic aluminum enterprises. Overseas electrolytic aluminum in March 2021 performance Synchronize recovery, the overall growth rate, still slightly weaker than the Chinese market.

Active increase and passive reduction of vs-- expected production recovery and reduction capacity in 2021 and long-term

The actual increase in production capacity in the second half of the year is 920000 tons, and these new capacity has been put into production. In the second half of the year, more of the production capacity reduced in the previous period is returned to production. What is the approximate amount of re-production capacity, and the contribution of this part of production capacity is also relatively limited. At present, overseas supply is also limited, overseas epidemic and other aspects of restraint, overseas new production capacity is not expected to be reflected until 2022, mainly concentrated in India, the Middle East and other regions.

Terminal consumption

The growth rate of aluminum terminal consumption slows down in the second half of 2021

Recently, the National Bureau of Statistics announced the national real estate development investment and sales from January to June 2021. In terms of development investment, national real estate development investment increased by 15.0% in the first half of the year compared with the same period last year, an increase of 17.2% over January to June 2019. In terms of start-up and completion, the area of newly started and completed houses increased by 3.8% and 25.7% respectively over the same period last year. Since the state implemented three lines of sales growth for real estate, the decline in sales growth reflects that under the background of tight policy, the regulation effect is gradually emerging, and sales are expected to continue to slow in the second half of the year. The completed area became regular in May, increased rapidly in June, and is expected to continue to pick up in the second half of the year. The increment of aluminum consumption in real estate in the second half of the year is expected.

Semi-finished product consumption

The operating rate of China's aluminum processing industry began to decline from June to July.

The start-up of building aluminum profiles led the decline of downstream processing plates, followed by plates and strips, while primary and recycled alloy plates continued to perform dull due to the lack of core of terminal automobile plates; cable operating rate rebounded steadily in the third quarter.

The operating rate of China's aluminum processing industry began to decline from June to July. Profile, strip, cable, alloy (recycled and primary), the reason for the slowdown is that the domestic aluminum processing industry performed better in the second half of last year, but the growth rate is limited this year.

Import and export

China's aluminum export market is still expected in 2021-2022.

According to customs data, the total export volume of aluminum from January to June was about 2.53 million tons, an increase of 12% over the same period last year. China's aluminum exports performed strongly due to the lack of Synchronize caused by internal and external outbreaks. The profit level of aluminum export gradually returned to the 19-year level.

In the second half of the year, we expect the ratio to maintain the current low level, which has a good support for China's aluminum export. according to our research, the current export order performance of Chinese aluminum is good, and we need to pay attention to the impact of shipping on the export market in the later stage.

Electrolytic aluminum inventory: the 2021 de-stocking cycle may extend to the end of the third quarter or be at a low level.

Supply and demand are both weak, and since late July, the speed of removing storage in China has slowed down, but based on various disturbances at the supply side, we expect that the inflection point of accumulation will continue to delay, and on the supply side we expect that there will be a small accumulation of storage in August-September. On the other hand, domestic dumping and storage will fill some of the gaps in production reduction, but from September to October, domestic electrolytic aluminum is still in a small peak season, and domestic electrolytic aluminum inventory is expected to remain at a low level of 800000 tons for the whole year.

Balance: China's domestic electrolytic aluminum is still dominated by tight balance in 2021, and it is difficult to have a large surplus space.

Summary: aluminum is a strong fundamental attribute pricing variety, fundamentals are still the key consideration. The year-on-year growth rate of electrolytic aluminum production in the second half of the year is weaker than that in the first half of the year. Pay attention to the expected change in the supply side. 1. The core operating range of the main contract in the second half of the year is 18000-19500 yuan, which does not rule out the possibility of a short-term break.

SMM expects the high operating range of aluminum prices in the second half of the year, on the one hand, inventory may remain low throughout the year, bottom support, cost will also continue to play a supporting role. On the other hand, macro Shanghai is expected to raise interest rates, as well as domestic dumping and regulation to give aluminum prices some suppression.