Where Will the Aluminium Market be Heading in 2H amid Surging Prices and Outperforming Shares?

SHANGHAI, Aug 10 (SMM) - Recently, the SHFE aluminium futures prices congested around 20,000 yuan/mt, and once climbed close to the previous 13-year high of 20445 yuan/mt set in May. Aluminium prices have risen as much as 28.4% year-to-date (YTD) as of August 10 midday closing price. International aluminium prices are also surging, up 29% YTD.

Foreign Market

Alcoa: Shares have soared 76.21% YTD. According to the previously disclosed second quarter earnings, Alcoa's revenue was US$2.833 billion for the quarter, up 31.89% year-on-year. The company expects sales to remain strong in 2021 due to continued economic recovery and increased demand for aluminium in the end market, and has raised shipment expectations for all divisions in 2021.

Rusal: Share price has also risen 53.3% YTD and its recently disclosed second quarter report showed that it sold 1.038 million mt of aluminium in the reporting period, up 7.9% quarter-on-quarter.

China Market

Chalco: Share price has risen 55.3% YTD, and its net profit attributable to shareholders of the listed company in 1H is expected to be approximately 3 billion yuan, an increase of approximately 2.96 billion yuan from the same period of the previous year, representing an increase of approximately 83 times year-on-year.

In the first half of the year, as aluminium prices remained high, the company paid close attention to cost reduction and efficiency enhancement, and improved the all-facet competitiveness of its main products against benchmarking. The gross profit of its main products increased significantly compared with the same period last year.

Share prices of Hoshion Industrial Aluminium Group, Yunlv Group, Sunho Group, rose 124%, 74.7%, and 35.1% respectively.

Market Outlook

In recent years, global aluminium output and demand has grown steadily, and has become the second largest metal material after steel. According to data from the China Nonferrous Metals Industry Association, in the first half of this year, China's output of ten non-ferrous metals was 32.549 million mt, an increase of 11.0% year-on-year. Among them, the production of primary aluminium was 19.635 million mt, an increase of 10.1% year-on-year.

Looking ahead to the second half of the year, SMM believes that the growth of domestic aluminium processing industry will be limited, and end consumption growth will also slow down. While the cost of aluminium is expected to continue to rise.

On the supply side, the second half of the year will largely focus on the resumed production of the previous production cuts, and the recovery is unlikely to be significant. Overseas supply is also limited by the epidemic and other factors. The new production capacity in overseas market will begin to show itself until 2022 to reflect, mainly concentrated by India and the Middle East.

Overall, SMM expects the aluminium prices to fluctuate at high levels. On the one hand, the annual inventory might remain at a low level throughout the year, thus underpin aluminium prices combined with cost factor. Bearish signals include the Federal Reserve interest rate hike, domestic release of government reserves and price regulation by the government.